How will the spin‑off of Solstice Advanced Materials affect Honeywell's earnings per share and overall valuation?

Impact on EPS:

The Solstice Advanced Materials spin‑off will strip out a sizable, lower‑margin specialty‑materials segment that currently drags the consolidated Honeywell earnings base. Assuming Solstice contributes roughly 10‑12 % of Honeywell’s total net income (based on the disclosed revenue mix), the headline EPS will fall in line with that proportion once the segment is removed. However, the remaining Honeywell businesses—aviation, building technologies, and performance materials—have higher operating margins and lower capital intensity. After adjusting for the reduced share count (the spin‑off will be distributed as a separate share class), the adjusted diluted EPS for the “post‑spin‑off” Honeywell is expected to be roughly flat to modestly higher (≈0–5 % uplift) versus the pre‑spin‑off figure, because the earnings loss is partially offset by a lower share pool and improved profitability of the core segments.

Valuation implications:

Market participants typically apply a “sum‑of‑the‑parts” lens to a split‑up. Honeywell’s core aerospace‑and‑building‑tech businesses command a premium EV/EBITDA multiple (≈13‑14 ×) relative to the more commoditized specialty‑materials business (≈8‑9 ×). Stripping Solstice should therefore raise Honeywell’s forward EV/EBITDA and P/E multiples by 0.5‑1.0 point, translating into a modest re‑rating of the stock (10‑15 % upside on current levels, all‑else equal). At the same time, Solstice will debut as a pure‑play “specialty materials” stock, likely trading at a lower multiple but with a clear growth narrative around refrigerants, semiconductors and protective fibers. The combined effect is an unlocking of hidden value—the market can now price each business on its own merits.

Trading take‑aways:

1. Honeywell (HON): If the post‑spin‑off valuation looks attractive relative to peers (e.g., P/E ≈ 20‑22 vs. aerospace peers in the high‑20s), consider a buy‑the‑dip on any short‑term pull‑back after the initial spin‑off rally. Watch the upcoming Investor Day for guidance on margin expansion; strong guidance could push the stock toward the higher end of the revised multiple range.

2. Solstice Advanced Materials (ticker TBD): Expect a list‑day pop as the market assigns a growth premium to its semiconductor‑material and refrigerant lines. Positioning a small long position ahead of the IPO could capture that upside, especially if the company signals robust demand from EV‑battery and climate‑friendly refrigerant markets.

3. Risk: Execution risk on the separation, potential tax drag on shareholders, and any unexpected decline in demand for specialty‑materials could mute the upside. Keep a stop‑loss near the pre‑announcement price for HON and monitor the IPO pricing for Solstice.