Honeywell (HON 0.83%) is a $130 billion market cap industrial Goliath. It operates businesses that span from automation to aerospace to advanced materials. The company is an icon on Wall Street today, but in a little over a year the situation is likely to be vastly different. Here’s what you need to know if you’re looking at Honeywell right now.
What is Honeywell?
Although correctly classified as an industrial company, Honeywell is really best thought of as an industrial conglomerate. That basically means the company operates in a number of different businesses, each with its own nuances. This isn’t an uncommon practice, but there’s a pendulum on Wall Street. Sometimes investors want to see companies grow larger through acquisitions, effectively creating conglomerates. And at other times investors want companies to slim down and specialize, which for existing conglomerates means breaking themselves apart.
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Wall Street has recently been leaning toward the preference of breaking conglomerates up. Industrial peer General Electric recently completed the process, separating out into three different businesses: GE Aerospace, GE Vernova, and GE Healthcare Technologies. And now Honeywell appears to be ready to do the same, announcing its breakup plans in early February.
Honeywell had previously announced plans to spin off its advanced material business. But it updated the plan to include the separation of its aerospace operations and its automation business. So, like General Electric, Honeywell as it exists today will cease to exist and it will, instead, be three different companies. The goal is to complete the breakup sometime in the second half of 2026, a bit more than a year from now.
What will investors own?
So the question for investors who own Honeywell today, or who buy it between now and the time of the breakup, is: What will they own after all of the technicalities are taken care of?
For starters, the process of breaking a giant company up isn’t easy. So the technicalities are a big deal, and they need to be monitored. For example: Who’s going to be on the different boards? Who will end leading the new companies? What will each company’s balance sheet look like?
Sometimes breakups don’t end up happening as planned. They can take longer than expected, and the companies that come out the other side aren’t treated equally well in the breakup. That said, when it all shakes out, shareholders of Honeywell as it exists today will end up owning three different companies.
Honeywell Automation will own the company’s portfolio of productivity-enhancing technologies, solutions, and software. The group had revenue of $18 billion in 2024, so it’s a sizable business. Automation is likely to be an important drive for companies in the future as they look to contain costs and increase profits.
Honeywell Aerospace will provide technology and solutions to the commercial travel and defense industries. According to Honeywell, it has its fingers in “virtually every” aerospace platform around the world thanks to its propulsion, cockpit, navigation, and power systems. This business generated $15 billion in revenue in 2024.
Advanced Materials is the smallest spinoff, with “just” $4 billion in revenue in 2024. It produces specialty chemicals and materials, with leading positions in “fluorine products, electronic materials, industrial grade fibers, and healthcare packaging solutions.”
The big goal of the Honeywell breakup
It’s too soon to know how all of this corporate activity is going to play out, or whether any of the companies that come out the other side will thrive. But there’s a general theme to consider. As a conglomerate, each of Honeywell’s divisions has to compete for capital and management attention. That can cause lagging businesses to be forgotten and ones that are doing well to deal with unnecessary distractions. Thus, the big plan here is to allow each of the new companies that are created to focus all of their attention on their core businesses. That’s a reasonable goal, but sometimes that doesn’t actually lead to good business performance.
So in about a year or so, Honeywell as it is known today will be no more. In its place will be three new companies, each with a more focused business model. That really makes Honeywell a special situation stock, which probably won’t interest most investors. That’s not to suggest that management is making a mistake, only that the outcome of such a massive overhaul is incredibly hard to predict.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE HealthCare Technologies. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.
