Morgan Stanley Sees Upside in Honeywell Aerospace Despite Valuation Concerns

Honeywell Aerospace (HONA) stock is up 7.51% today after Morgan Stanley upgraded it to Overweight with a $205 price target. The upgrade is based on what analysts see as a valuation gap, with HONA trading at around 16.8 times its 2028 projected free cash flow (FCF), compared to a peer median of about 25.5x.

This represents a discount of 35%, making HONA the cheapest large-cap aerospace name in Morgan Stanley's coverage. Analyst Kristine Liwag's core thesis is that the market has over-penalized Honeywell Aerospace for fixable supply chain problems, which she believes can be addressed through investments and new supplier additions.

However, a closer look at HONA's financials reveals some red flags, including negative book equity due to debt-to-equity ratio of -283.5%, suggesting the spin-off left the balance sheet with more liabilities than assets. The company's fair value model suggests it is actually slightly overvalued at current levels, not cheap.

The bear counter argues that execution risk remains elevated, as Q3 faces a tough comparison and management admitted to overestimating the June ramp pace. While Morgan Stanley's logic partially holds, it is a bet on 2027-2028 recovery, not immediate resolution of supply chain issues in 2026.