On Friday, BofA Securities maintained a positive outlook on Honeywell International (NASDAQ:HON), reiterating a Buy rating and a $250.00 stock price target. The endorsement follows Honeywell's recent announcement that it will acquire CAES from Advent International for $1.9 billion.
This all-cash deal, expected to close in the second half of 2024, has been valued at approximately 14 times the estimated 2024 earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), considering tax adjustments. Excluding the tax benefit, the multiple is closer to 15 times, according to BofA's estimates.
The acquisition is anticipated to be earnings per share (EPS) accretive in the first full year following the closure, with a more substantial impact by 2026. Although the deal may have a neutral to slightly negative impact on Honeywell's 2024 EPS, estimated at around $0.02 or a 0.2% headwind, it is projected to increase EPS by $0.09 in 2025 and by $0.15 in 2026, corresponding to uplifts of approximately 0.8% and 1.2% respectively.
The transaction aligns with Honeywell's strategy to boost its Aero Technologies segment's long-term growth, targeting a mid-single to high-single-digit compound annual growth rate (CAGR) through 2028. BofA Securities also expressed confidence in Honeywell's ability to achieve a return on invested capital (ROIC) of at least 10% by the fifth year following the acquisition.
The proactive move to engage in mergers and acquisitions is viewed positively by BofA Securities, as it echoes Honeywell's commitment to growth and value creation. The firm's analysis suggests that the acquisition of CAES will contribute positively to Honeywell's long-term financial performance and strategic positioning within its industry.
In other recent news, Honeywell International Inc (NASDAQ:HON). has been actively advancing its aerospace technologies, as demonstrated by the acquisition of CAES Systems for approximately $1.9 billion. This all-cash transaction is expected to enhance Honeywell's defense technology offerings and diversify its aerospace business.
Moreover, Honeywell's first-quarter earnings showed a notable increase, with sales in its aerospace division rising by 18% to $3.67 billion. Total first-quarter sales grew by 3% to $9.11 billion, exceeding analyst estimates.
In terms of corporate governance, Honeywell has implemented leadership changes within its Audit Committee and Corporate Governance and Responsibility Committee. Analysts have also revised their outlook on Honeywell's stock, with UBS upgrading the rating to Neutral from Sell, while Deutsche Bank downgraded the stock from Buy to Hold.
In addition to the CAES Systems acquisition, Honeywell has completed the purchase of CARR's Global Access Solutions business and the $4.95 billion acquisition of the Carrier security business. The company is also reportedly exploring the sale of its personal protective equipment division, valued at over $2 billion. These recent developments highlight Honeywell's ongoing strategic efforts in its aerospace and defense technology sectors.
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