Honeywell Technologies X Elliott Investment
"We're in the catalyst-huntin' business. And business is a-boomin'."
Remember that scene from Quentin Tarantino’s Inglourious Basterds, where Lieutenant Aldo Raine gives Standartenführer Hans Landa a souvenir, a little somethin’ he can’t take off?
Bet you do!
Also remember the final words of the entire movie?
“I think this might just be my masterpiece.”
When I think about Honeywell and the corporate spin-offs they performed recently, that’s exactly what I think. I think it might be the masterpiece of Elliott Investment Management.
In November 2024 Elliott made their single biggest investment ever: $5 billion of Honeywell International. This resulted in them receiving a board seat for one of their partners (Marc Steinberg). Elliott then used their influence to “push” or rather convince management into separating into three different businesses:
Materials,
Automation,
Aerospace.
The goal was to eliminate the conglomerate discount, which I explained in my first article (linked below).
I believe that 18-24 months from now the partners of Elliott will look at the $5 billion bet that they took, and also think that this might have just been THEIR masterpiece, because they have done an excellent job!
I mean the first spin-off of Honeywell’s materials business Solstice Materials has already performed exceptionally well, being up more than 80% over the first ~8 months as a standalone company.
Then they announced an acquisition with a financing that the market didn’t like so much, and now the shares are back down to just $60. But you’d still be up >30% since the spin.
I covered the situation after the Materials spin, and leading up to the Aerospace spin:
And just roughly a month ago, June 29th, Honeywell International separated into two businesses:
Honeywell Technologies (keeping the ticker HON) & Honeywell Aerospace (HONA).
In the article above I was discussing that both businesses are good, but that Aerospace is an absolute powerhouse:
The main reason is that aerospace businesses have very long and sticky backlogs with high margins. On top of that they are very hard to disrupt, and they produce a ton of FCF with limited reinvestment needs.
That’s why Chris Hohn of the TCI Fund, who is also known as the Moat Investor, has a ton of his portfolio allocated to aerospace businesses. If you don’t know Hohn, he’s arguably one of the best investors ever. Just last year he made the largest annual profit ever recorded from a single hedge fund.
I said that most people will likely focus on Honeywell Aerospace (HONA), and wait for the separation before investing. I, on the other hand, suggested that by investing in the conglomerate pre-spin (Honeywell International), you get cheap access to Honeywell Aerospace before it re-rates after the spin AND I argued that Honeywell Technologies has been set up very very well to do well on its own.
Both businesses and stocks are likely going to do well over the next few years in my opinion. Both industries have strong tailwinds.
As a result, I suggested building a position in the conglomerate, but also to leave room to add to either the RemainCo or the Aerospace business depending on the price development post-spin.
In this article I will look more closely into the RemainCo, Honeywell Technologies. I will share catalysts that are happening over the next couple of months. There are a few, which is why this write-up has the name ‘Catalyst-Ville’. We then look at HON’s valuation and come up with what the better play is now, post-spin: investing more into HON or HONA. Or even do nothing.
Honeywell Aerospace is the better business for the long run, but Honeywell Technologies could be the better investment over the next two years due to the catalysts.
Please enjoy your ride, because you’re about to enter Catalyst-Ville.
The List of Catalysts
Massive distribution from HONA to HON
Industrial Automation turnaround + 2 business sales
Monetization of Quantinuum (QNT) stake
Improved FCF due to annual royalty fee
Protecting FCF due to lack of pension contributions
Changes in the accounting method used for QNT stake
Spin-off related costs hide true earnings power
Next, we look more closely at the catalysts, then move on to a valuation and my conclusion.
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DISCLAIMER
This newsletter is for informational and educational purposes only and does not constitute financial or investment advice. I am not a registered financial advisor. The stock market carries inherent risks, and any investment decisions you make are solely your responsibility. Always do your own research or consult a professional before investing.