Honeywell (HON) confirmed on Monday that it is mulling a separation of its high-growth, high-margin aerospace business after an activist investor pushed for a breakup of one of the few remaining U.S. conglomerates. In morning trade, Honeywell stock led the Dow Jones Industrial Average higher.

Honeywell Considers A GE-Style Breakup

In a news release, Honeywell said its board has made "significant progress" on a strategic review to date. The GE Aerospace (GE) rival and Boeing (BA) supplier promised an update on moves to unlock shareholder value with its next quarterly earnings report, due at the end of January.

Activist firm Elliot Investment Management, which manages roughly $70 billion in assets, welcomed the news. "We believe the portfolio transformation (CEO) Vimal (Kapur) and his team are leading represents the right course for Honeywell," the firm said in its response to the news. "We look forward to the upcoming completion of the review and to supporting Honeywell as it implements the necessary steps to realize its full value."

An earlier letter from Elliott addressed to Honeywell's board of directors on Nov. 12 revealed it held a $5 billion stake in the company and advocated for the spinoff of the Aerospace Technologies business. The letter advised a split into two companies, separating the aerospace unit from the automation, energy and sustainability solutions businesses.

Analysts sized a standalone Honeywell aerospace business at $90 billion-$120 billion market value, including debt.

Early in 2024, investors rewarded the former General Electric for its own transformational breakup. The Honeywell rival spun out GE Aerospace (GE) and GE Vernova (GEV), an energy play, as independent companies in April.

Among other 2024 spinoffs, fellow conglomerate 3M (MMM) spun out Solventum (SOLV) in April as well.

Honeywell Stock Leads Dow Jones Higher

Shares popped more than 3% on the stock market today, leading the Dow Jones Industrial Average's advance. Honeywell stock climbed above the top of the buy range from an October breakout past 220.79.

GE stock rose on Monday to bounce off the 200-day moving average, which has fallen below the 50-day line. 3M stock dipped below the 50-day line. Vernova and Solventum gained.

Under CEO Kapur, Honeywell has sought to streamline and simplify its business. General Electric followed a similar track, leading GE stock to soar ahead of the emergence of GE Aviation, which kept the GE ticker symbol.

'More Transformational Changes'

In January, Honeywell said it would focus on growth opportunities in automation, aviation and energy, while shedding other businesses. CEO Kapur said on Monday that the company continues "evaluating more transformational changes."

But Honeywell stock has lagged this year. That led Elliott Investment Management to swoop in, with the activist investor pushing for a breakup after taking a more than $5 billion position in the conglomerate.

Honeywell stock, which has increased its dividend for 14 consecutive years, offers a 1.95% yield. The Dow stock's 12% gains so far this year owe almost entirely to a rally in the final quarter of 2024.

The company has made the dividend a priority in recent years. It's targeting at least $25 billion toward dividends, acquisitions, capital expenditures and share buybacks through 2025, Kapur said in September, while announcing a hike in the HON stock dividend from $4.32 to $4.52 per share.

Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.

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