After 15 years of bullishness on Honeywell , JPMorgan is finally moving to the sidelines. In a Thursday note, the Wall Street bank downgraded shares of the Charlotte-based industrial manufacturer to a neutral rating from overweight. At the same time, analysts led by Stephen Tusa lifted the price target to $235 from $225. Shares of Honeywell are up just 1% on the year but stand to gain almost 10% over the next year, based on Tusa’s updated price target. The maker of aerospace and building automation products is currently trading at a 20% discount to its sector — far below its historical discount of 4%, JPMorgan said. HON YTD mountain HON YTD chart While Tusa said Honeywell shares are cheap, the company’s planned divestitures are a short-term headwind. “After almost 15 years recommending HON, despite new management that we believe is doing the right things for the long term, we are moving to the sidelines, mostly due to the spin[off] that appears dilutive, resulting in another year that lacks clarity on the forward earnings curve, for a stock that is cheap but remains a consensus Sell Side long,” Tusa wrote. Still, Tusa applauded Honeywell’s defensive growth profile, extended visibility from a long cycle backlog and renewed focus on growth under a new CEO. Those measures may not bear fruit quickly, however. “Our concern is that a refreshed focus on organic growth, which we expect to pay off somewhat in 2025, may not fall to the bottom line as expected, with a trade-off that is balanced against margins,” the analyst wrote. “We had thought the company had 3% upside from acquisition accretion in ’25 setting up for a beat, but with divestitures now taking center stage, it appears as though while portfolio management will likely mix the company to higher quality metrics, the dilution is a cost that breaks the near term consensus earnings curve,” JPMorgan said. Tusa highlighted Honeywell’s planned spinoff of its Advanced Materials division as a good strategic move. But spinning off the business also checks any sum-of-the-parts upside ahead for Honeywell, and management has said there might be more dilutive deals to come, the bank said. “Without clarity on clean earnings upside, and a less compelling [sum of the parts] than some others, we see HON as being range-bound in the near term and we move to Neutral despite a cheap headline valuation,” Tusa said.
