RBC Upgrades Honeywell, Downgrades United Technologies

RBC Capital Markets upgraded aerospace and industrial company Honeywell International Inc. (NYSE: HON) this week in the wake of its business spinoffs and issued a "soft" downgrade of aerospace and defense industry stalwart United Technologies Corporation (NYSE: UTX) as it moves toward a break into three companies.

The Analyst

RBC Analyst Deane Dray upgraded Honeywell from Sector Perform to Outperform with a price target of $148.

Dray downgraded United Technologies to Sector Perform while dropping the price target from $139 to $119.

The Thesis

Honeywell is more attractive following the completion of two spinoffs that will boost the earnings of the remaining part of the company, reduce some of its environmental liabilities and allow it to focus on its core businesses, Dray said in a Thursday upgrade note. 

Honeywell spun off Resideo Technologies, Inc. (NYSE: REZI) and Garrett Motion, Inc. (NYSE: GTX) in the fall.

Honeywell's stability may look good to industrial investors who are fearing market volatility or a recession, as Honeywell could be a “flight to quality” stock, the analyst said. Honeywell could make an acquisition that further boosts earnings, he said. 

United Technologies is also planning to separate its business into parts, having announced in November it will break into three companies to separate its well-known jet engine and aerospace business from Otis Elevator Co. and air conditioner and heating unit Carrier.

While RBC sees the impending breakup as a move that will unlock value in the stock in the long run, Dray said the benefits may not come until the split is complete in 2020. 

“It is becoming increasingly evident that shares could be stuck in limbo for the next 18-24 months while the separations are being completed,” the analyst said. 

Price Action

Honeywell shares were up 3.13 percent at $134.23 at the time of publication Friday. 

United Technologies was up 3.26 percent at $106.85. 

Related Links:

What You Need To Know About United Technologies' Business Split

Benzinga's Top Upgrades, Downgrades For January 4, 2019