Honeywell International Inc. (NYSE: HON) completes Spin-off of its Transportation Systems business into Garrett Motion Inc. (GTX)
On October 1st, 218, Honeywood International Inc. completed the spin-off of its transportation systems business into a separate company, Garrett Motion Inc. The spin-off was tax-free and and announced on October 10th, 2017. The spin-off is in line with management's strategy of shedding non-core businesses.
HON expects organic sales growth rate, better segment margin profile and improved cash conversion after the restructuring. We continue to believe the main trigger for the stock will be management's ability to allocate capital. Given management's impressive track record of accreditive M&A, we remain confident in their ability to efficiently deploy cash (~$10 billion available for 2018 in the US). However, the current valuation reflects all the positives, in our view.
GTX is the market leader in the $12 billion turbocharger industry which is experiencing global macro tailwinds. Stricter pollutants emissions standards (primarily for NOx and particulates) are driving higher turbocharger adoption. Long-term co-development with OEMs and strong aftermarket presence ensures revenue visibility.
Of the two, we prefer GTX owing to more upside potential. In our view, HON (exGTX) is fairly valued and GTX is undervalued.
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