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Honeywell (HON) Resideo's Arm Prices Senior Notes Offering

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Honeywell International Inc. (HON - Free Report) has announced that a subsidiary of Resideo Technologies, Inc. (Resideo) — Resideo Funding Inc. — priced an offering of $400 million worth of senior notes due to mature on Nov 1, 2026. This offering is anticipated to close on Oct 19, 2018.

It’s worth mentioning here that senior notes offering have been made in relation to the previously announced spin-off of Resideo from Honeywell.

Inside the Headlines

Notes have been priced at 100% of the principal amount and carry coupon rate of 6.125%. These instruments will be guaranteed by Resideo and its domestic subsidiaries.

As noted by the company, Resideo intends on using funds, which are likely to be raised through this offering as well as from its credit facilities (senior secured), to repay debt to Honeywell or its subsidiary. The repayment to Honeywell or its subsidiary will likely total $1.2 billion. Additionally, funds will be used for expenses related to notes offering and credit facility.

Planned Spin-Off of Resideo

In October 2017, Honeywell communicated that it was planning to spin off its ADI Global Distribution business and Home product offerings. In July 2018, the company decided that the spun-off ADI Global Distribution business and Home product offerings would be known as Resideo.

On Oct 2, 2018, the company declared that it will distribute one share of Resideo for every six shares of Honeywell. The distribution will take place on Oct 29, 2018. All shareholders of record as of Oct 16 are eligible for this distribution. Resideo will start trading on the NYSE from Oct 29, under the ticker symbol ‘REZI’.

It’s worth noting here that Resideo is primarily going to deal with security and critical comfort solutions, mostly for residential environments.

The spin-off is likely to mark the end of Honeywell’s portfolio transformation strategy, once it finally gets completed in October 2018. These tactical initiatives will help the company to concentrate on high-growth industrial businesses and thus boost organic growth. Further, these strategies will expand margins and strengthen balance sheet.

Zacks Rank & Stocks to Consider

With a market capitalization of $122.3 billion, Honeywell presently carries a Zacks Rank #3 (Hold). The company stands to gain from solid demand for its products, improved productivity and commercial excellence. However, it currently faces headwinds from rising costs and expenses.

Over the past three months, Honeywell’s shares have yielded 13% return, outperforming 6.3% increase recorded by the industry.

Furthermore, the stock’s earnings estimates are currently pegged at $8.15 for 2018 and $8.77 for 2019, reflecting growth of 0.1% and decline of 1% from respective 60-day-ago tallies.

Honeywell International Inc. Price and Consensus

Honeywell International Inc. Price and Consensus | Honeywell International Inc. Quote

Better-ranked stocks in the industry are Federal Signal Corporation (FSS - Free Report) , ITT Inc. (ITT - Free Report) and Danaher Corporation (DHR - Free Report) . While Federal Signal sports a Zacks Rank #1 (Strong Buy), both ITT and Danaher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates on Federal Signal and ITT have improved for the current year while remained unchanged for Danaher. Further, earnings surprise for the last reported quarter was a positive 22.48% for Federal Signal, 6.82% for ITT and 4.95% for Danaher.

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