Dj Honeywell International Inc. Stock Outperforms Competitors On Strong Trading Day

The S&P 500 Index Tuesday closed down -0.29%, the Dow Jones Industrials Index closed down -0.86%, and the Nasdaq 100 Index closed down -0.17%.

Stock indexes settled moderately lower on Tuesday as they consolidated the past week’s rally to record highs. Higher bond yields Tuesday fueled some profit-taking pressures in stocks following five straight sessions of gains. Also, long liquidation in stocks ahead of Wednesday's US consumer price report weighed on the overall market.

Stocks have rallied sharply over the past week, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting new record highs on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation.

Positive Fed comments on Tuesday were bullish for stocks. Richmond Fed President Barkin said the US economy looks "pretty good," and the Fed is in a position to respond however the economy evolves. Also, Minneapolis Fed President Kashkari said only inflation could derail a Fed rate cut in December, and "if we saw inflation surprises to the upside between now and then, that might give us pause."

The markets are looking ahead to Wednesday’s US consumer price report for October, with Oct CPI expected to climb to +2.6% y/y, up from +2.4% y/y in Sep, and core Oct CPI expected to remain unchanged from Sep at +3.3% y/y. Also, Friday’s report on retail sales will be looked at to see if consumer spending is holding up. Oct retail sales are expected to be up +0.3% m/m, and Oct retail sales ex-autos are also expected to be up +0.3% m/m.

Of the 85% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average. According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.4% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 62% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Tuesday settled lower. The Euro Stoxx 50 tumbled to a 2-month low and closed down -2.25%. China's Shanghai Composite Index closed down -1.39%. Japan's Nikkei Stock 225 closed down -0.40%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed down by -15.5 ticks. The 10-year T-note yield rose +13.1 bp to 4.435%. T-notes were under pressure Tuesday from carryover weakness in European government bonds. Also, upbeat comments Tuesday from Richmond Fed President Barkin curbed safe-haven demand for T-notes when he said the US economy looks "pretty good." In addition, concerns about inflationary pressures of future policies from President-elect Trump are weighing on T-notes.

European government bond yields Tuesday moved higher. The 10-year German bund yield rebounded from a 1-1/2 week low of 2.299% and finished up +3.6 bp to 2.362%. The 10-year UK gilt yield rose +7.4 bp to 4.499%.

The German Nov ZEW survey expectations of economic growth unexpectedly fell -3.7 to 7.4 versus expectations of an increase to 13.2.

ECB Governing Council member Rehn said disinflation in the Eurozone is "well on track," and the growth outlook "seems to be weakening," and "that strengthens the case for an ECB rate cut in December."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 23% for a -50 bp rate cut at the same meeting.

US Stock Movers

Mosaic closed down more than -7% to lead losers in the S&P 500 after reporting Q3 net sales of $2.8 billion, weaker than the consensus of $3.14 billion.

GE Vernova closed down more than -7% after the Financial Times reported that CEO Strazik said the company plans to postpone searching for new offshore turbine orders until market conditions improve.

Home builders retreated Tuesday after the 10-year T-note yield jumped more than +13 bp, which boosts mortgage rates and is negative for housing demand. As a result, PulteGroup , Lennar , DR Horton , and Toll Brothers closed down more than -3%.

Elevance Health closed down more than -2% after the CFO said he sees pressure in Medicaid persisting in 2025 and sees Medicare Advantage margins missing their 2025 targets.

Neurogene closed down more than -43% after a disclosure indicated an emerging serious adverse event in a trial participant for the experimental Rett syndrome drug.

Alnylam Pharmaceuticals closed down more than -3% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $205.

Knight-Swift Transportation Holdings closed down more than -4% after Citigroup downgraded the stock to sell from neutral with a price target of $56.

Airbnb closed down more than -2% after Phillip Securities downgraded the stock to reduce from neutral with a price target of $120.

Tyson Foods closed up more than +6% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 92 cents, stronger than the consensus of 72 cents.

Honeywell International closed up more than +3% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after Elliot Investment Management said it built a $5 billion stake in the company and is calling for a breakup of the company.

Live Nation Entertainment closed up more than +4% after reporting Q3 adjusted operating income of $909.8 million, stronger than the consensus of $856.6 million.

Nvidia closed up more than +2% after Redburn initiated coverage on the stock with a buy recommendation and a price target of $178.

Shopify closed up more than +21% after reporting Q3 revenue of $2.16 billion, better than the consensus of $2.12 billion.

Twilio closed up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $120.

Molson Coors Beverage closed up more than +2% after JPMorgan Chase said the latest data showed improving trends for the company as the latest 4-week trend to November 2 saw dollar takeaway down -1.9%, an improvement of 200 bp over the prior 4-week period.

Earnings Reports (11/13/2024)

Cisco Systems Inc (CSCO), Loar Holdings Inc (LOAR), NU Holdings Ltd/Cayman Islands (NU), Tetra Tech Inc (TTEK).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

US benchmark stock indexes traded slightly lower midday Tuesday as investors await the consumer price index report, the first one that will be released after Donald Trump defeated Kamala Harris in the 2024 presidential election.

The Nasdaq fell 0.34% to 19,234.86, with the S&P 500 down 0.45% to 5,974.76 and the Dow Jones Industrial Average 0.67% lower at 43,996.2 after midday on Tuesday.

Materials and utilities led the decliners, while consumer staples and communication services led the gainers intraday.

The CPI for October, set to be released Wednesday, is expected to increase 0.2% sequentially and 2.6% annually, "a potential uptick from the 2.4% annual increase in September," Stifel Chief Economist Lindsey Piegza said in a note.

The National Federation of Independent Business's monthly Small Business Optimism Index rose to a reading of 93.7 in October from 91.5 in September and was above a reading of 90.7 a year earlier.

In company news, Shopify shares jumped 26% on Tuesday after the e-commerce platform operator reported that its Q3 revenue increased to $2.16 billion from $1.71 billion a year earlier.

Home Depot reported fiscal Q3 adjusted earnings of $3.78 per diluted share on revenue of $40.22 billion, surpassing market expectations. Shares of Home Depot were down 0.8% in recent Tuesday trading.

Activist investor Elliott Investment Management urged Honeywell International to split into two standalone companies to separate its Aerospace and Automation businesses. In a letter sent to Honeywell's board, Elliott said it believes a separation would lead to share-price gains of 51% to 75% over the next two years. Elliott disclosed a more than $5 billion investment in the company. Honeywell shares were up 3% around midday Tuesday.

The US 10-year Treasury yield rose 13.3 basis points to 4.441%. The two-year rate increased 11.1 basis points to 4.365%.

The US Dollar Index was up 0.57% to 106.15.

West Texas Intermediate crude rose 0.31% to $68.25 per barrel.

Gold was down 0.6% to $2,602 an ounce, and silver climbed 0.19% to $30.67 an ounce.

Honeywell International Inc. is facing pressure from Elliott Management after the activist investor revealed a more than $5 billion stake in the industrial giant.

Elliott is urging Honeywell to split its Aerospace and Automation divisions, a move it believes could unlock significant value, projecting up to 75% upside by 2026.

The proposal arrives as Honeywell stock hits a record high, raising the stakes for this potential restructuring.

In a letter to Honeywell on Tuesday, Elliott Management argued that the company’s traditional conglomerate structure no longer serves its best interests.

“The conglomerate structure that once suited Honeywell no longer does,” the activist investor stated.

The firm believes that separating Honeywell’s aerospace and automation businesses could streamline operations, eliminate inefficiencies, and ultimately drive shareholder value.

Honeywell has acknowledged the proposal and confirmed that it will engage with Elliott Management, appreciating the perspectives of all its shareholders.

However, the company has struggled in recent years with a complex corporate structure and subpar communication with investors, contributing to its underperformance relative to peers in the industrial sector.

Elliott has pointed to these issues, along with a challenged portfolio, as reasons for Honeywell’s lagging position in the market.

Honeywell’s performance and Elliott’s rationale for a split

Honeywell’s aerospace division, described by Elliott as the company’s “crown jewel,” has consistently been a strong performer.

However, the activist investor noted that the division has received only a small portion of Honeywell’s mergers and acquisitions (M&A) budget—just 10% of the funds spent over the past two decades.

Despite this, aerospace continues to generate substantial cash flow for the company.

Elliott argues that splitting Honeywell into two distinct entities—each focused on aerospace and automation—would create two more focused, potentially more valuable companies.

Both divisions already have separate CEOs and back-office operations, making the proposed split more feasible.

At present, Honeywell stock remains an attractive option for income investors, offering a dividend yield of 1.93%.

Wall Street analysts have a consensus “overweight” rating on Honeywell shares, reflecting confidence in the company’s long-term potential despite recent challenges.

HON hasn’t been prudent with allocating M&A dollars

Elliott’s proposal aligns with a broader trend in the industrial sector, where conglomerates are facing increasing pressure to break up into smaller, more focused companies.

General Electric (GE) is a notable example: in 2024, GE split into three separate entities: GE Aerospace, GE Vernova, and GE Healthcare.

Elliott itself previously pushed for a split at Marathon Petroleum in 2019, underscoring the activist investor’s strategy of advocating for more streamlined and efficient business models.

“The path we’re suggesting is not novel, and we’re confident that many have already suggested it to Honeywell’s Board and management,” Elliott added in its letter.

The firm believes that, if executed, both Honeywell’s aerospace and automation businesses could each be worth more than $100 billion as standalone companies.

As Honeywell navigates this critical juncture, the pressure from Elliott Management is likely to fuel ongoing debates about the future of industrial conglomerates and the potential benefits of a more focused, streamlined approach.