Honeywell International Inc. (HON) remains a top pick for JPMorgan as the company's spinoffs look promising.
The New Jersey-based conglomerate, which provides services and software products for a range of industries, rose 0.1% in pre-market trading on Thursday. Analysts remain bullish on the company's trajectory despite segmentation.
"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," JPMorgan'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."Post the disclosure of details that provide clarity on key moving parts of the coming spins, Honeywell stock sets up as one of the best positioned stories into year-end as 2019 comes into view," J.P. Morgan managing director C. Stephen Tusa said, dismissing any dilution concerns 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 FCF with a best in class balance sheet deserves nothing less than a premium multiple to the sector in our view."
Additional details on the spinoff of the company's transportation segment, now called Garret Motion Inc., will be available today at 8:30 a.m. ET when the company hosts an investor call outlining the business.
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.
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."
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."