Honeywell International Inc. HON remains a top pick for J.P. Morgan as the company's spin-offs look promising.
The New Jersey-based conglomerate, which provides services and software products for a range of industries, rose 1.4% during the trading day on the back of bullish comments from analysts.
"Honeywell stock sets up as one of the best-positioned stories into year-end as 2019 comes into view and we're raising our year-end 2018 PT to $175," J.P. Morgan's Stephen Tusa wrote in a note on Thursday.
He added that worries over a "spin purgatory" bear case for stock due to dilution of shares and impact on earnings per share is unwarranted and dismissed concerns on share dilution as a result of the planned spin-off.
"Simple math shows that they may be able to ultimately execute the spins without ANY dilution to where consensus was and portfolio, above average growth in earnings and free cash flow with a best in class balance sheet deserves nothing less than a premium multiple to the sector in our view."
Vindicating his view, shares began to rise steadily after the company's conference explaining the spin off of the company's transportation systems segment, indicating a positive review on the new business structure.
The company has also benefited recently from its Honeywell Intelligrated division, which the company acquired in 2016.
The division specializes in material handling and software engineering and touts Amazon.com, Inc. (AMZN) as a partner and a customer.
"Warehouse automation is huge, driven by e-commerce, [and] it's a trend that I think is going to continue not just in North America, but throughout the world," CEO Darius Adamczyk told Jim Cramer on CNBC last night.
His bullishness builds on statements he made extolling the business in the company's July 20 earnings presentation.
"Amazon has been a great customer," he told analysts. "We're -- in some ways, we're a supplier and a customer, so it kind of goes in both directions."
He added that the company's target on warehouse automation through e-commerce is the "sweet spot" for his company, as e-commerce is one of the fastest growing industries in the world and tying your business to a star like Amazon certainly pays off for shareholders.
"This will turn out to be probably the best acquisitions we've ever done, and I continue to feel very strongly about that," he declared.
Analysts took note of the opportunity Intelligrated presents and the positive impact it has had since its integration into Honeywell's core business.
Morningstar, Inc. Josh Aguilar said that increased investment into this segment is imminent following the completion of the spinoffs of transportation and home businesses by year end.
"It makes the spin-offs make sense," he told Real Money. "When Adamczyk is looking at where he is going to put his money now, warehouse automation is going to be top of the list."
As a multi-national company that deals in large scale manufacturing there is concern that remains on the effect of increasing tariffs on the conglomerate.
The concerns specifically relate to production in China as well as imports of Chinese materials to the United States.
However, Adamczyk downplayed this concern in his interview with Jim Cramer last night.
"Tariffs are not a big mover for us," he said. "One of the things that we pride ourselves on is that we have very much a local-for-local strategy, so most of our manufacturing [and] innovation, for example, for China, takes place in China."
The company has also widely and directly addressed its actions to mitigate tariff impact on the business by fortifying its pricing and supply chain against these macroeconomic factors.
The changes made under Adamczyk to respond to the ongoing trade spat has helped the company defend its share price more effectively than many of its industrial peers.
Jim Cramer's research team recently addressed Honeywell's spinoff-related challenges in an Action Alerts Plus report. Honeywell is a holding in Action Alerts Plus charitable trust.
"[People are] trying to understand whether they should be more concerned about China tariffs than a company that really is controlling its own destiny," Cramer said on the floor of the New York Stock Exchange. "They should just stick with Honeywell. If anyone doesn't own it for the charitable trust, it's not a bad time to buy some."