Honeywell Aerospace rated Neutral in new coverage by BNP Paribas

[Electronic boxes and circuit breaker panels inside an electronics and equipment bay in a 787 commercial passenger airplane.]
Martin Chavez/iStock via Getty Images

Honeywell Aerospace (HONA [https://seekingalpha.com/symbol/HONA]) may not be losing as much ground as some investors fear, but that doesn't mean the newly spun out company is about to become Wall Street's favorite aerospace stock.

BNP Paribas Equity Research initiated coverage of Honeywell Aerospace with a Neutral rating and a $245 price target, implying roughly 11% upside from the stock's June 29 closing price of $220.20.

Analyst Matt Akers said the company retains strong positions across multiple aerospace markets and that investors may be overlooking the value of its defense business. However, he expects profit growth to trail many aerospace peers over the next several years.

MARKET SHARE CONCERNS MAY BE OVERSTATED

A key debate among investors has centered on whether Honeywell Aerospace (HONA [https://seekingalpha.com/symbol/HONA]) has ceded too much market share to rivals, particularly in commercial aviation.

Akers said the picture is more nuanced than the headline losses suggest. While Honeywell's setbacks in avionics programs for Boeing's (BA [https://seekingalpha.com/symbol/BA]) 737 and 787 aircraft have attracted attention, those businesses represent only a relatively small portion of the company's overall aerospace portfolio.

BNP estimates that large commercial avionics aftermarket revenue accounts for just 5% to 10% of Honeywell Aerospace's (HONA [https://seekingalpha.com/symbol/HONA]) business. Meanwhile, the company has maintained or improved its competitive position in auxiliary power units, business jet avionics and business jet engines.

As a result, Akers said the overall impact from market-share losses is manageable and already reflected in the company's long-term growth outlook.

Defense business stands out

One area BNP said deserves greater recognition is Honeywell Aerospace's (HONA [https://seekingalpha.com/symbol/HONA]) defense operation.

Defense-related products are expected to account for approximately 41% of Honeywell Aerospace's 2025 sales. Unlike many traditional defense contractors, much of Honeywell's defense portfolio is derived from commercially developed technologies and enjoys significant international exposure, with roughly 30% of sales generated through direct commercial channels.

Those characteristics tend to support stronger profitability than is typically seen in the defense sector.

BNP highlighted Honeywell's ES segment, which derives more than half of its revenue from defense markets and also generates some of the highest margins within the company. That combination is relatively unusual in aerospace and defense, where defense-heavy businesses often produce lower margins than commercial aerospace operations.

GROWTH EXPECTED TO TRAIL AEROSPACE PEERS

Despite those strengths, BNP does not expect Honeywell Aerospace (HONA [https://seekingalpha.com/symbol/HONA]) to keep pace with many aerospace peers in the near term.

The firm cited a combination of product mix changes, increased investment spending and lingering market-share pressures as factors likely to weigh on earnings growth through at least 2027.

While Honeywell's long-term target of 6% to 8% organic growth appears achievable, Akers believes investors may remain more attracted to aerospace companies offering steadier and more immediate earnings expansion. The report suggests growth could accelerate later in the decade, but the path there may require patience.

WHAT IT MEANS FOR INVESTORS

For investors, BNP's initiation highlights a stock caught between two competing narratives. On one hand, concerns about catastrophic market-share erosion appear exaggerated, and Honeywell Aerospace's defense business may be more profitable and strategically valuable than the market currently appreciates.

On the other hand, slower earnings growth over the next several years could limit valuation expansion compared with faster-growing aerospace peers. BNP's Neutral rating reflects a view that much of Honeywell Aerospace's (HONA [https://seekingalpha.com/symbol/HONA]) near-term risk and opportunity is already reflected in the stock, leaving investors waiting for stronger growth catalysts to emerge later in the decade.

MORE ON HONEYWELL AEROSPACE INC.

* Honeywell Aerospace: A Promising Venture, But I Need More Information [https://seekingalpha.com/article/4918499-honeywell-aerospace-a-promising-venture-but-i-need-more-information]
* Honeywell's Breakup: Analyzing Honeywell Aerospace's Index Dynamics [https://seekingalpha.com/article/4917173-honeywells-breakup-analysing-honeywell-aerospaces-index-dynamics]
* Honeywell Aerospace gains in market debut as breakup strategy takes flight [https://seekingalpha.com/news/4608180-honeywell-aerospace-gains-in-market-debut-as-breakup-strategy-takes-flight]
* S&P indexes reshuffle: Honeywell Aerospace replaces Conagra in S&P 500 [https://seekingalpha.com/news/4606465-sp-indexes-reshuffle-honeywell-aerospace-replaces-conagra-in-sp-500]
* Historical earnings data for Honeywell Aerospace Inc. [https://seekingalpha.com/symbol/HONA/earnings]