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Why Honeywell’s big acquisition could bolster its stock
Honeywell International is putting cash to work with a big acquisition in the security space. And we think the deal could yield a huge pay-off for its stock. The industrial conglomerate said Friday it reached a deal to buy air conditioner maker Carrier ‘s security business for $4.95 billion. The all-cash deal is Honeywell’s largest acquisition in eight years, and one that should bolster its struggling building technologies division . Jim Cramer on Friday called the acquisition a “win, win” for both Honeywell and Carrier. By acquiring Carrier’s Global Access Solutions unit — which manufactures products like electronic locks, video monitoring apps and fire alarms — Honeywell is setting itself up to benefit from growing demand for safety and access solutions. “You will never see a roll back in safety and security,” Jim said during an interview with Honeywell CEO Vimal Kapur on Friday. “This seems to be an asset that fits right into [the] idea that you are just going to have more security and more safety around the world. Your new company will play a big role in that,” he added. Security remains one of the market’s most secular trends, meaning its consistent over the long term and largely unaffected by short-term macroeconomic developments. The deal is also a play on the reindustrialization boom in the U.S., as a growing number of American companies look to bring their manufacturing operations closer to home. A host of new data centers, drug manufacturing plants and semiconductor fabrication plants will require digital access solutions and robust security options. HON YTD mountain Honeywell (HON) year-to-date performance Kapur told Jim Friday that the acquisition not only gives Honeywell the opportunity to build a higher-growth business with more margin expansion and better cash generation, but also broadens the company’s customer base and end markets. “The penetration into the big companies is pretty strong [for Carrier’s business] and I expect that to grow the value Honeywell is going to bring in,” Kapur noted. Honeywell, which expects to close the deal before the end of the third quarter of 2024, said the acquisition should be accretive to earnings-per-share in the first full year after the transaction is completed. The news comes on the heels of management’s recently announced portfolio restructuring in October, which aims to reorient the company around the mega trends of automation, the future of aviation and the energy transition. Kapur took over as Honeywell’s chief executive in early June of this year. This will be the company’s first acquisition under new management. Elsewhere, analysts at Jefferies said Friday that the the deal was a “sweet spot in terms of valuation.” Global Access Solutions “enhances Honeywell Building Technologies with high-value capabilities under the Automation umbrella of its recent portfolio realignment,” Jefferies analysts wrote in a research note. Shares of Honeywell were trading down roughly 1.5% Friday afternoon, at around $194.70 apiece. (Jim Cramer’s Charitable Trust is long HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Honeywell International Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York.
Michael Nagle | Bloomberg | Getty Images
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