Honeywell dinged for doing too many things — here's how it gets back on track

Published Wed, Apr 17 20246:00 AM EDT

Wall Street analysts on Monday issued a bearish call on Club holding Honeywell International , citing its lagging stock performance and sluggish growth prospects. We're hopeful management can get the company back on track by reshaping its massive portfolio of far-flung businesses. Deutsche Bank downgraded Honeywell to hold from a buy rating and lowered the company's price target by 5% to $215, maintaining a roughly 10.8% upside from Monday's closing price. The analysts said investor concerns about subpar organic growth in Honeywell's massive portfolio have caused the stock to underperform its peers. Shares are down over 8% this year, compared to the S & P 500 Industrial's roughly 7% advance since the start of 2024. Future upside looks limited as well, they argued. "We think diversification has become HON's enemy; at any given point in time, it is highly likely that one (or more) of HON's business units will be in the midst of a downturn, constraining the company's ability to outgrow more focused peers," the analysts wrote in a note to clients. The company has underperformed the median organic growth for its group [multi-industrial, electrical equipment and machinery] in each of the last four years, and has only outperformed it in two of the past 11 years, the analysts noted. Jim Cramer has acknowledged Honeywell's lackluster performance and urged CEO Vimal Kapur to reshape the company's portfolio. For example, Honeywell's aerospace division has shined, but the firm's safety and productivity solutions business and its building technologies segment have struggled, weighing down its overall financial performance. "You can't be a chemical company, a warehouse company, a logistics company, a security company, a climate control company and expect the Street to love you," Jim said during the March Monthly Meeting . "That's just too much of a hodgepodge. That's too hard for analysts to get their heads around." "It's time for Kapur to declare what he wants his Honeywell to be," he said, adding that the company is "increasingly looking like a leftover pastiche of industrials." But recognizing weakness doesn't mean losing hope. We purchased more shares last week when the stock was trading near 2024 lows, and will consider adding to our position again if it falls below $190 apiece. Shares traded at about $192 on Tuesday. To turn things around, Honeywell plans to divest as much as 10% of the company's total revenues from portfolio businesses that don't fit around the firm's three mega-trends: automation, the future of aviation, and the energy transition. Deutsche Bank analysts said that Honeywell's businesses don't have the value it takes to benefit from the headache of breaking up a company. The firm described similar divesting efforts as "an arduous, disruptive [and] long process." However, we've seen that strategy work. Portfolio name and medical equipment maker GE Healthcare Technologies , for example, was spun off from General Electric in 2023. GEHC shares initially slumped after the breakup, but have reversed course after beating earnings expectations and forecasting more improvement in margins. The plan to divest also doesn't prevent Honeywell from more targeted and strategic buys. Proceeds from the sales of businesses that don't fit the mega-trends could go to deals for higher-growth companies that do fit under the portfolio restructuring. For example, Honeywell announced a deal to buy the security business of air conditioner maker Carrier in December under the new automation trend. Kapur said that the $4.95 billion all-cash deal will give Honeywell a business with more margin expansion and better cash generation. (Jim Cramer's Charitable Trust is long HON, GEHC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Honeywell International Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York.

Michael Nagle | Bloomberg | Getty Images