Morgan Stanley Sees Honeywell Aerospace as Undervalued

Morgan Stanley's upgrade of Honeywell Aerospace to Overweight with a $205 price target has sent shares soaring by 7.51% on Monday, despite being down around 27% since its June 29 spin-off.

The analyst, Kristine Liwag, argues that the market has over-penalized the company for fixable supply chain problems, citing a valuation gap of 35% compared to peer median multiples.

Honeywell Aerospace trades at around 16.8x 2028 P/FCF and 11.4x 2028 EV/EBITDA, making it the cheapest large-cap aerospace name in Morgan Stanley's coverage by a wide margin.

However, the company's fundamentals are messy, with negative book equity, debt-to-equity of -283.5%, and fair value model suggesting the stock is slightly overvalued at current levels.

The supply chain issues remain a concern, with management admitting to overestimating the June ramp pace and Q3 facing tough comparisons.