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Honeywell's EPS View Up, Divested Businesses File Form 10

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Honeywell International Inc.HON lately declared that its divested businesses, Garrett Motion Inc. (Garret) and Resideo Technologies, Inc. (Resideo), have filed Form 10 registration declarations with the U.S. Securities and Exchange Commission (SEC). The two divestitures are in sync with the company's ongoing portfolio transformation strategy. Honeywell has also raised its earnings per share (EPS) view for 2018.

Inside the Headlines

Honeywell's Transportation Systems business, Garret offers state-of-the-art turbocharger technologies across the globe. It generated sales of roughly $3.1 billion in 2017. On the other hand, the company's Homes and ADI Global Distribution business, Resideo is an internationally renowned provider of security and critical comfort solutions, mostly across residential environments. The business secured revenues of approximately $4.5 billion in 2017.

Post spin-off, Garret and Resideo will be trading as two separate independent publicly trading companies in the market. However, via a long-term agreement, Honeywell will provide the patented license of its Honeywell Home brand to Resideo, for the latter's usage in some of its security hardware and home comfort, and software solutions.

Each divestiture is capped to reduce the future uncertainty concerning their cash payment compulsion to Honeywell. The ceiled cash payment amount for Garrett and Resideo is $175 million and $140 million respectively.

Garrett divestiture is planned to be completed by the end of third-quarter 2018. On the other hand, Resideo spin-off is projected to be completed by 2018-end.

Spin-Off Benefits

Honeywell intends to become a software-industrial company on the back of strategic portfolio shuffling moves. Post the aforementioned divestitures, the company will focus more on high-growth business across lucrative industrial end-markets. Concentrating on its productive businesses, Honeywell intends to secure greater organic growth, expand margins and strengthen balance sheet over time. This would further fortify the company's existing capital deployment strategy.

Honeywell currently anticipates securing one-time dividends of $3 billion from the two divestitures. Going forward, the company intends to deploy the proceeds in share repurchases and debt repayment. Additionally, by 2019-end, Honeywell intends to get rid of all redundant corporate, functional, and shared services expenses related to Garrett and Resideo divestitures.

EPS View Raised

Concurrent with the divestiture announcements, Honeywell raised its earnings guidance for 2018. The company currently anticipates securing earnings within the range of $8.10-$8.20 per share in 2018, higher than the prior view of $8.05-$8.15 per share. Honeywell elevated its view on grounds of commercial strength across all end-markets, growth in backlog and long-cycle orders, as well as favorable accounting alterations related to Bendix asbestos liabilities.

On a quarter-to-date basis, Honeywell's shares have rallied 9.7%, outperforming 5.3% growth of the industry it belongs to.

We perceive that increased technology spending in the global commercial aviation industry, coupled with sturdier demand for state-of-the-art technology solutions, stronger liquidity, greater operational excellence and lower corporate taxes will continue to drive profitability of this Zacks Rank #3 (Hold) stock in the quarters ahead.

Stocks to Consider

Some better-ranked stocks within the same space are listed below:

Federal Signal Corporation FSS sports a Zacks Rank of 1 (Strong Buy). The company pulled off an average positive earnings surprise of 22.48% over the past four quarters. You can see the complete list of today's Zacks #1 Rank stocks here .

Carlisle Companies Incorporated CSL holds a Zacks Rank #2 (Buy). The company delivered an average positive earnings surprise of 12.85% over the trailing four quarters.

Crane Company CR also carries a Zacks Rank of 2. The company recorded an average positive earnings surprise of 3.03% over the same time frame.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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