Honeywell, ITT, Eaton See Bright Outlook As BofA Securities Cites Military Spending, Aftermarket Growth

BofA Securities analyst Andrew Obin hosted investor meetings at the Paris Air Show with Honeywell International HON, Eaton Corp ETN, Parker-Hannifin Corp PH, Ametek Inc AME, and ITT Inc ITT.

All the companies the analyst met with were bullish on increased defense momentum, particularly in Europe.

He said companies were broadly constructive on the cycle from both an original equipment ramp standpoint and sustained aftermarket momentum, with many citing a boost from retrofits, modifications, and upgrades (RMU).

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Obin said that conversations focused on sources of outgrowth and margin expansion (on margin, particularly for Parker-Hannifin and Eaton).

According to the analyst, original equipment pricing is clearly a lever for certain companies, including Eaton and ITT.

Obin maintained Buy ratings on Honeywell, Parker-Hannifin, Eaton Corp, Ametek and ITT.

Honeywell: Obin noted that the industry outlook supports Honeywell’s medium-term target for mid-to-high single-digit aerospace industry growth.

The analyst noted that the aftermarket is the key area to enable outgrowth relative to the market. The company is sticking with its framework on margins (e.g., long-term 29% aerospace margins) but being conservative near-term. Investors are prioritizing growth over margins, as per Obin.

Eaton Corp.: The analyst’s meeting with Eaton focused on the company’s margin expansion targets, accelerating military spending and sources of commercial outgrowth.

Volume leverage and original equipment (OE) pricing are likely the key enablers to reach 27% aerospace margins by 2030E (versus 23% in 2024), Obin said.

The company has expanded its aerospace portfolio from historical hydraulics and fuel systems with recent acquisitions, and the recent Ultra deal adds more complementary technologies and increases military exposure, he noted.

Parker-Hannifin: Obin noted after the meeting that Parker-Hannifin is confident in its margin trajectory into fiscal 2026 and beyond and that aerospace should continue to be a source of outperformance versus the market and peers.

In the near term, macro seems stable without an inflection or deterioration in the industrial environment, as per the analyst. On the margin, he noted that the M&A environment remains tight with challenging valuations.

Ametek: Obin noted that Ametek is very bullish on increased military spending in Europe and may add capacity in Eastern Europe in the long term (more brownfield than greenfield facilities). It has a relatively balanced portfolio between aftermarket and OE.

The analyst said the defense part of the business has grown faster in recent years on a relative basis. By end market, he estimated roughly 60% of the company is defense, 10% business and general aviation, and air transport. Obin noted that Ametek is well-positioned to capitalize on increased defense budgets. He was impressed by the company’s flexible business model, which gives unit leaders control over their P&Ls, as demonstrated in his meeting.

ITT: Obin noted OE is a larger portion of ITT’s business. The business is split between interior (e.g., hydraulics for seats) and control surfaces as the two main pieces, as per the analyst. He said the control surfaces are more comparable to Parker-Hannifin and Eaton’s businesses.

Obin added that interior demand is driven by the refresh cycle, and control surface demand is driven by flight hours. He said the company is very bullish on military spending.

On Commercial OE, ITT is slowly seeing Boeing orders return after a period of destocking and expects more regularity in the third or fourth quarter, the analyst said.

Obin said that the aero business is getting increased capital within ITT (e.g., the recent kSaria acquisition). The analyst noted that once the price increases roll through, this should yield a fairly immediate impact on Boeing’s business price or margins, which are $10 million per quarter. ITT expects price increases to be a large margin driver in the future for this segment, he said. Obin added that ITT continues to demonstrate the class’s best culture and operating system.

Price Actions: Honeywell stock was trading lower by 0.36% to $221.08, Eaton stock is down 0.87% at $331.95, Parker-Hannifin stock is down 0.17% at $651.15, Ametek was down 0.56% at $176.76, and ITT stock was down 0.36% at $150.12 on Friday at publication.

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