TD Cowen Starts Honeywell Aerospace Inc (HONA) at Hold

TD Cowen analyst Gautam Khanna initiates coverage on Honeywell Aerospace Inc (: HONA) with a Hold rating and a price target of $250.00.

The analyst comments: “HONA is the spin-off of Honeywell's aero segment (6/29). It holds high shares in many product areas (APUs; avionics; environmental/pressure systems; engines) that cut across aero & defense platforms. HONA has an unusual sales mix, as its commercial aero aftermarket (A/M) sales are 3x its aero OE sales (even aftermarket play TDG is closer to 50/50), reflecting idiosyncratic factors (RMUs) & some share loss. HONA is addressing this by raising its supply chain investments (70% external; 30% internal) to pare "past dues" ($2B), and maintaining a high level of R&D (10% of sales; 4% company-funded) to position for new aircraft platforms.

HONA’s end markets (aero A/M; OE; defense) are in an extended cyclical upturn, portending a 7E% sales CAGR through C30. But, we expect subdued incremental margin vs. HONA’s recent history given a high margin “starting point”, mix pressures (aero OE growth > aftermarket), & other factors (e.g. supply chain/R&D investments). Capital deployment is apt to be balanced, with a modest dividend, buybacks to merely offset share creep, and tuck-in M&A. Thus, HONA's op. profit gains are apt to exceed sales growth by only 1-2%, below that of the Buy-rated aero suppliers that we cover.

We initiate at Hold, with an $250 PT, approx. 17.0x C27 EV/EBITDA, given the firm’s subdued op. profit growth compared to our preferred aero stocks. HONA's financial leverage is fairly high (3.1x net debt/EBITDA), and its relative valuation is above that of TDG and RTX, stocks that we prefer given their greater EBITDA/op. profit growth & upward estimate revision potential (from margins at RTX; from M&A at TDG). HONA does not yet have broad set of consensus estimates, & it hasn't released PF historicals, which makes it challenging to assess expectations.”

For an analyst ratings summary and ratings history on Honeywell Aerospace Inc click here. For more ratings news on Honeywell Aerospace Inc click here.

Shares of Honeywell Aerospace Inc closed at $ yesterday.

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