Morgan Stanley Upgrades Honeywell Aerospace to Overweight on Compelling Valuation

Analyst Kristine Liwag noted in a client report that while fundamental concerns persist — including HONA’s lower revenue and EBIT growth relative to peers, limited margin expansion, weaker free cash flow conversion, and potential constraints from reduced next-generation commercial original equipment content on long-term aftermarket opportunities — the current valuation more than offsets these risks. She argued that HONA deserves a discount compared to peers, but not the approximately 35% discount currently reflected in the stock price.

Honeywell Aerospace shares have declined about 24% over the past month since the company was spun out from Honeywell in late June, amid supply chain difficulties affecting operations. The stock is down roughly 27% since June 29. Trading at approximately 16.8 times estimated price-to-free cash flow and 11.4 times expected enterprise-value-to-EBITDA for 2028, Honeywell Aerospace is now the cheapest large-cap aerospace stock in Morgan Stanley’s coverage.

Liwag explained that the current pricing reflects expectations of a prolonged operational recovery and a structurally reduced long-term earnings and free cash flow base. However, she contended that the pessimism surrounding the long-term outlook is excessive, given the company’s established installed base, aftermarket exposure, defense portfolio, and underlying end-market demand.

Contrary to the broader market consensus, Morgan Stanley’s recommendation stands out: among the 15 analysts covering Honeywell Aerospace, 10 maintain a hold rating while five recommend a buy or strong buy, according to LSEG data. Following the upgrade, shares rose more than 2%.

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