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**TLDR**: this is an early attemp to do a valuation of $HONA which was spun off on the 29th June. Due to the FOG of War, this aerospace company is priced currently at fair value, i do expect that investors will bid up the price once data is made available.
**Honeywell Aerospace in $hona, financial year: Jan-Dec, This Report: Spun off. Today: 6th July**
0 Recent Price: 247 Marketcap: 78bn Revenue 17.68bn
1 EPS TTM (Diluted): 4.76 (Normalised, Morningstar): 9.37, (Zacks) -, (SA): -, (Lucy Diamonds): 8.82
(Comment: due to the spin off with lots of one time items, the range of values varies greatly for the adjusted or Normalised EPS. It might be better to the End 2025 figures instead or maybe use this year's 2026 expect adjusted EPS nos).
|Adjusted EPS|MStar|CFRA|SA|Zacks|Barron's|Lucy Diamonds|
|:-|:-|:-|:-|:-|:-|:-|
|2025|9.40|\-|\-|\-|\-|9.82|
|Q1-TTM|9.37|\-|\-|\-|\-|8.82|
|2026 (this year)|\-|9.11|8.97|7.75|9.12|\-|
|2027|\-|10.08|10.16|8.90|10.23|\-|
|2028|\-|\-|11.38|\-|11.44|\-|
2 Yield - , -
3 ROA: 8.21, ROE: 66.25, ROIC: 22.35 (FOW: quarterly Equity is negative)
4. P/E 2026 range = 27.11 to 31.87 (due to range of estimates)
5. Debt / Equity = N/A (FOW: quarterly Equity is negative), if i use 2025 Bookvalue, the D/E -= 1.86 (!)
Netdebt / Ebitda is around 3.1 ( my calculation is 4.2, CFRA + etc says it is currently at 3.1x)
6. FCF Conversion = FCF/Netincome = 73 to 90% currently
7. Past Growth:
Source: Refer to slide one:
|Past Growth|2022-2025 CAGR|
|:-|:-|
|Sales|11%|
|Adjusted EBIT|9%|
|FCF|13%|
**8. Management Guidance:**
2026: Organic Growth 7 - 9%
See Slide 2 for industry growth assumptions
2030: Sales Growth 6-8%, Adjit EBIT 9%,
See Slide 4,6 & 7 for industry growth assumptions
**9. Forward growth assumptions by external parties**
|Source:|EPS Next 3 to 5 years CAGR|
|:-|:-|
|SA|11.2% (manually calc) to 12.30% (stated)|
|CFRA|10%|
|DCF & Zack's & MS-NR|\-|
**10. My calculation of Fairvalue:**
(Caution: there are many moving parts compared to other companies because of the spin-off, in making assumtions, we aim to be conservative but not pessismisti)
Assumption 1: by end 2026. the company will earn adjust EPS of 7.11
Assumption 2: Management has said that they except 5 year of Adjusted EBIT growth of 9% for the next 5 years from 2025 to 2030 (see slide 7). I assume that EPS will growth that 9%, this is a bit dicey, on the one hand Management said they expect to exceed this, and FCF will grow even faster, on the other hand, due to elevated debt level, currently at a 3.1x leverage, they will incur higher interest expense which will affect earnings per share independently of EBIT. Anyway analysts estimates are higher see no.9.
Assumption 3: I assume a 10 year duration of 9% growth. i will stick to 9% as discount rate. (The WACC of Honeywell Intl, the former parent company is around 7.45% to 8.9%). I will also assume a 3% perpetual growth rate. It isn't sexy to use a perpetual growth rate as 2/3 of the valuation is based on terminal value. But I am sticking to my guns on consistency, despite some strong protestation from many commenters.
|Duration|10 years|5 years|
|:-|:-|:-|
|Growth %|9%|9%|
|Adusted EPS|9.11|9.11|
|Multiplier|27.17x|22.17x|
|Fairvalue|27.17 x 9.11 = 247.49|22.17 x 9.11 = 201.94|
||||
11. Morningstar and CFRA fairvalue calculation for HONA
Morningstar: $285.
CFRA: No Fair value but has a price target of $282
**12. Conclusion**
my fair value is around 201 to 247. If you believe that Honeywell Aerospace's 100 year old business business won't be able to protect its moat past the next 5 years then the fair value is around $201. i will probably buy a blob below 250 and then do more due diligence until the fog of war lifts.
What i not discussed here are the Catalysts, Redflags, etc. I will probably clean up what i wrote yesterday and paste it in this thread. (my current thinking is that is is a very company, but not as great as GE Aerospace, see my next thread).
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**(Below is a copy and paste verbatim from my notes):**
* Honeywell Aerospace looks interesting indeed, it is a very good business with a strong tailwind. It isn’t as great as GE aerospace as manifested by its 1year backlog versus GE’s 4 years backlog, here are the reasons why it is a very good but not the widest moat:
* there is a great push towards open source avionic standards, if this happens HONA could find its secret sauce eroded.
* unlike GE where choice of engines is usually a seperate customer negotiation process, HONA’s stuff are embedded with the OEs. This means their negotiation power will not be as good as GE’s .
* They are more exposed to Defense than GE.
* What i like about HONA:
* 90% embedded in all airframe, especially the auxillary power unit
* dominant in the business jet category, the tail wind is the fractional ownership business. The products will include avionics, apu, control systems, engines etc.
* Red flags
* Debt leverage of 2.5 may limit the amount of dividend issued. They could follow GE’s play book and give a token dividend until the debt is reduced and then increase the dividend. In the spinoff , they did mention issuing a dividend but nothingi is declared yet. Of course back then GE (the industrial conglemerate) had a net debt / ebitda of 4.x + versus Honeywell’s current leverage ratio of about 2.5x)
* Frankly, management has said the purpose of the spinoff is to pursue growth versus margin expansion that was the priority pre-split.
* Catalysts (short term)
* CFO and CEO alluded that they have stuff identified to fix:
* (a) Inventory Turns from 2-2.5 to 3.5 to 4 (pre-covid)
* Supply chain issuesinventory turn to improve
* go for growth opportunities versus just margin expansion
* Catalysts Longer term
* Secular growth in commercial flight 6% industry growth with concentration in Asia
* aging planes need to be refreshed by 2040
* Guidance
* Company guiding to 9% EBIT growth for next 5 years.
* eps is around $9.
* this puts a fair value estimate of roughly 27 x 9 = 243