# Honeywell Aerospace (HONA)

Sector: Aerospace systems & defense electronics

| Field | Value |
|---|---|
| Price | $157.94 |
| Fair value (Analysts) | $256.00 |
| Discount to fair value | 38.3% |
| Fair value uncertainty (Analysts) | Medium |
| Economic moat (Analysts) | Wide |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 2.56 |
| Data as of | 2026-10-12 |
| Next earnings | 2026-10-28 (confirmed) |

## In short

A parts shortage forced a guidance cut, and the gap can close from 2027 if supply catches up with strong orders.

## Themes and gap

- Themes: High debt (leverage), Regulation and courts (regulation-legal)
- Gap type: Can close (closable)
- Why: Quarterly reports show when the parts shortage eases and the aftermarket backlog turns into revenue.

## About

Honeywell Aerospace makes equipment and parts for aircraft and spacecraft. Its main product lines are avionics and navigation systems, engines and auxiliary power units, and aircraft control systems, plus satellite communication products, including laser links. It reports three segments: Electronic Solutions, Engines and Power Systems, and Control Systems. Aircraft makers like Airbus and Boeing, and business jet makers, buy this equipment new as original equipment (OE), a lower-margin sale. Once the equipment is installed, Honeywell then earns higher-margin, recurring revenue for decades by selling replacement parts, repairs, and overhauls, called the aftermarket. Sales to the US and allied militaries and to space programs form a separate end market, Defense and Space. Honeywell Aerospace became an independent public company on June 29, 2026, when Honeywell International, renamed Honeywell Technologies (ticker HON), spun it off. This followed Honeywell's earlier spin-off of Solstice Advanced Materials (ticker SOLS) on October 30, 2025, completing a three-way breakup that left Honeywell Technologies as a smaller, pure-play automation company. Honeywell Aerospace is headquartered in Phoenix, Arizona, employs more than 36,000 people, and serves more than 10,000 customers worldwide. It joined the S&P 500 and the S&P 100 at the spin-off. It left the S&P 100 on September 21, 2026, and stays in the S&P 500.

## Thesis

Most of the discount opened on a single day, August 6, 2026. The evening before, Honeywell Aerospace cut its first full-year guidance as an independent company. It blamed a shortage of castings, forgings, and other mechanical parts from a small group of suppliers. The stock fell 23% on August 6. A securities class action lawsuit filed weeks later argues management understated how bad the shortage was. The company also carries about $16 billion of debt from its own spin-off and pays no dividend yet. That leaves little financial room for a further setback. The gap can close if the supply shortage eases as management now expects. That would let more aftermarket parts, Honeywell's highest-margin business, reach customers. Orders for the twelve months to June 2026 grew 8%, and the backlog was $18.2 billion at the end of June, up 9%. So the case rests on supply catching up with demand, not on demand itself. Large order wins, like the July 2026 IndiGo avionics deal for 810 aircraft, need to show up in revenue rather than stay stuck in the backlog. Management reaffirmed its 2030 targets in September 2026, but investors have no multi-year standalone track record to check them against yet. Honeywell Aerospace will report third-quarter 2026 results on October 28, 2026, after the market closes. That is the next chance to show supply is improving. If the shortage eases and the pending class action does not produce a large judgment, the discount could start to close over the next three to five quarters, not before 2027.

## Checkpoints

- Oct 28, 2026: Q3 2026 earnings: parts supply and aftermarket shipments. Status: Pending. Watch: Better supplier output, guidance held at 4% to 5% organic growth and H2 free cash flow of $1.0 to $1.5 billion pass; a second guidance cut fails.
- Nov 23, 2026: Securities class action lead-plaintiff deadline. Status: Pending. Watch: A slow, routine case with no new disclosures passes; new facts about the DOJ cybersecurity matter or supplier problems fail.
- Feb 2027 (estimate): Full-year 2026 results and first 2027 guidance. Status: Pending. Watch: 2027 guidance with higher aftermarket sales, margin recovery and a plan for debt reduction or a dividend passes; flat earnings and no deleveraging path fail.

## Balance sheet

- Cash: $1.1B
- Debt: $16.0B
- Net debt: $14.9B
- Undrawn credit line: $4.0B
- Last debt due: 2066
- Ratings: S&P BBB+ (positive outlook), Fitch A- (stable outlook), Moody's A3 (stable outlook)

Honeywell Aerospace started life with debt that it did not use for its own business. On March 16, 2026, it issued $16.0 billion of senior notes in nine series. It gave Honeywell $15.1 billion for the spin-off: $9.1 billion in cash and $6.0 billion of the notes. Total equity was negative $5.6 billion at June 27, 2026. This comes from that payment to the former parent, not from losses, so it is not a sign of distress by itself. The fixed-rate notes have an average coupon of about 5.0%, and $0.5 billion floats with SOFR. Only $1.25 billion is due before 2029. Net debt of $14.9 billion is about 3.4 times the guided 2026 adjusted EBIT of $4.35 to $4.45 billion. Two undrawn credit lines, $1.0 billion for 364 days and $3.0 billion for five years, back a $4.0 billion commercial paper program. The company also pays Honeywell $1.125 billion over five years, in monthly payments of $18.75 million, for the right to use the Honeywell name. This works like extra debt. Interest cost was $200 million in the second quarter, and guided second-half free cash flow is $1.0 to $1.5 billion. The board approved a $3.5 billion buyback on July 23, 2026, and the company expects to pay a dividend in line with its peers. Both compete with debt reduction until earnings recover from the parts shortage.

As of 2026-06-27.

Sources:

- https://www.sec.gov/Archives/edgar/data/2089271/000208927126000021/hona-20260627.htm
- https://www.sec.gov/Archives/edgar/data/2089271/000208927126000020/exhibit991q22026earningsre.htm
- https://www.sec.gov/Archives/edgar/data/2089271/000162828026043193/exhibit991-informationstat.htm

## Recent events

- 2026-10-07: Goldman Sachs started coverage of Honeywell Aerospace with a Neutral rating and a $190 price target. Two days later, TD Cowen cut its target to $170 from $180 and kept a Hold rating.
- 2026-09-30: Law firms announced a securities class action, Green v. Honeywell Aerospace, Inc. (D. Ariz., No. 26-cv-06779), on behalf of investors who bought shares between June 29 and September 1, 2026. It alleges Honeywell Aerospace made false or misleading statements about supplier concentration risk and did not disclose the DOJ cybersecurity investigation before its August 5, 2026 guidance cut. The lead-plaintiff deadline is November 23, 2026.
- 2026-09-29: Honeywell Aerospace confirmed that it will report third-quarter 2026 results on October 28, 2026, after the Nasdaq close, with a call at 5:00 p.m. EDT.
- 2026-09-14: Melius Research downgraded Honeywell Aerospace to Hold from Buy and cut its price target to $190 from $216. Reports said Melius expects slower aftermarket growth next year.
- 2026-09-09: At investor conferences in September, CEO James Currier said the company reacted too late to its supplier problems. He said ten suppliers of metal parts are the main bottlenecks.
- 2026-09-04: S&P Dow Jones Indices said Honeywell Aerospace would leave the S&P 100 on September 21, 2026. The stock stays in the S&P 500.
- 2026-09-01: Director Craig Arnold bought 6,400 Honeywell Aerospace shares at $156.00 each, about $1.0 million, in an open-market purchase.
- 2026-09-01: The US Attorney's Office for the Western District of North Carolina announced that Honeywell Aerospace agreed to pay $2.04 million to settle False Claims Act allegations that it did not meet cybersecurity requirements in US Department of Defense contracts from 2020 to 2023.
- 2026-08-19: Morgan Stanley upgraded Honeywell Aerospace to Overweight from Equal Weight, with a $205 price target. The stock rose about 6% that day.
- 2026-08-12: Honeywell Aerospace completed an exchange offer, swapping about $16 billion of unregistered senior notes issued for the spin-off into registered notes, with 98% or more of each series tendered.
- 2026-08-05: Honeywell Aerospace reported its first quarterly results as an independent public company: Q2 2026 revenue of $4.52 billion, up 5% organically. It cut 2026 organic sales growth guidance to 4% to 5% from 7% to 9%, and adjusted EBIT guidance to $4.35 to $4.45 billion, because of parts shortages. It also disclosed a $3.5 billion share buyback that the board approved on July 23, 2026. The next day, the stock fell to a low of $150.03 and closed 23% lower, at $156.47.
- 2026-07-20: IndiGo chose Honeywell Aerospace avionics and auxiliary power units for 810 Airbus A320neo-family aircraft. The companies did not disclose the value of the deal.
- 2026-06-29: Honeywell Aerospace completed its spin-off from Honeywell Technologies and began trading on Nasdaq as HONA. It also joined the S&P 500 and the S&P 100.
- 2025-10-30: Honeywell completed the spin-off of Solstice Advanced Materials (ticker SOLS), the first of the two spin-offs that separated Honeywell into three independent companies.

## Risks

- High: A shortage of mechanical parts, such as castings and forgings, from a small number of suppliers forced Honeywell Aerospace to cut its full-year 2026 organic sales growth guidance from 7%-9% to 4%-5%, and cut adjusted EBIT guidance by about $300 million, in its very first quarter as a public company. In September 2026, the CEO said the company reacted too late to the supplier problems.
- High: Honeywell Aerospace issued about $16 billion of senior notes to fund its own spin-off from Honeywell Technologies, and pays no dividend yet. This debt load leaves less room to absorb a further supply chain delay or a slowdown in aircraft or defense demand.
- Medium: The company has no earnings history as an independent business before its August 2026 debut report. Investors cannot yet check management's guidance and cost estimates against a multi-year standalone track record.
- Medium: The parts shortage cut shipments of international defense products, which have high margins, in the second quarter of 2026. Commercial aftermarket sales still grew 8%. If supply stays short, the company cannot ship its full aftermarket and defense backlog, and margins stay under pressure.
- Medium: Revenue depends on aircraft production rates at Boeing and Airbus, airline flight activity, and US and allied defense budgets, none of which Honeywell Aerospace controls. A slowdown in any of these would slow growth further on top of the current supply problem.
- Medium: A securities class action (Green v. Honeywell Aerospace, Inc., filed in the District of Arizona) alleges the company misled investors about supplier concentration risk and did not disclose a DOJ cybersecurity investigation before its August 2026 guidance cut. The case is at an early stage, with a lead-plaintiff deadline of November 23, 2026, but an adverse outcome could add legal costs and management distraction on top of the supply-chain problem.
- Medium: The 10-Q for the quarter that ended June 27, 2026 shows $828 million of environmental liabilities. The company says the final cost could be two to three times the amount it recorded.

## Links

- Page: https://picks.kamadorueda.com/company/HONA/
- History of changes: https://picks.kamadorueda.com/company/HONA/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/HONA.json

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