Deutsche Bank's upgrade indicates strong potential for Honeywell's future

In the United States, on February 6, 2025, Deutsche Bank announced an upgrade for Honeywell, elevating its rating from hold to buy due to the company's plan to separate into three standalone entities. This decision was made under the influence of activist investor Elliott Management, who has advocated for significant changes within the company. Analyst Nicole DeBlase asserted that this strategic separation would empower the individual parts to operate with greater focus and efficiency. The analyst also increased the price target for Honeywell stock from $236 to $260, suggesting notable growth potential of up to 30% based on updated evaluation metrics. Furthermore, the revised price target implies that Honeywell's stock could see a price increase despite a recent 5% decrease in its shares. DeBlase refers to earnings-related catalysts on the horizon that could boost Honeywell's stock prices. The company provided guidance for adjusted earnings ranging between $10.10 and $10.50 for 2025, a figure that falls short of the consensus estimate of $10.94. According to DeBlase, this conservative outlook is strategic, intending to set the stage for a performance beat, influencing the stock's valuation positively. DeBlase also points out that recent trends in the industrial sector show a pattern where share separations lead to improved operational control and capital reinvestment. This trend supports her assertion that Honeywell's breakup will not only strengthen individual components but will also create conditions wherein the average earnings multiple of similar companies could become applicable to Honeywell's shares. By positioning Honeywell for improved execution post-split, the market may re-rate the stock towards its peer group average. The general sentiment shifts from worry about the impending separation to anticipation for the long-term benefits it may entail. While the break-up's consequences may not be immediately seen, analysts believe there could be significant weight in the eventual performance outcomes as the market adjusts to the breakup strategy, along with the anticipated increases in earnings performance. As a result, there is cautious optimism about investors witnessing both short-term earnings beats along with structural changes that could lead to heightened value in the long term.