This Corporate Spinoff Strategy Could Unlock Faster Growth

Thermostat

Companies have many ways to see faster growth. One way is to invest more into researching new products and services to offer. For some companies that have multiple departments and divisions already, a corporate spinoff may be ideal.

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  • That could include the direct sale of a division to another company. It could also mean that a company voluntarily splits itself up into two or more companies. That way, investors can view a company as a standalone business, not as just one part of a more unwieldy whole.

    General Electric made such a split in the past few years, splitting into three companies. As a result, the overall valuation of those businesses has started to rise. Now, Honeywell (HON) is looking to make a similar move, also proposing to split into three companies.

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    Markets weren’t too happy with the news, but the aerospace technologies, building automation, and industrial automation segments may carry different returns for investors once split up. Honeywell rose about 15% in the past 12 months, underperforming the overall market.

    Action to take: Investors may like Honeywell here, ahead of its split into three parts. Until the split is made, Honeywell also pays a 2% dividend.

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  • For traders, Honeywell shares are likely to trade in a range ahead of the potential split. Given the selloff on the news, however, the April $220 calls, last trading for about $4.00, could see low double-digit returns on a post-earnings rebound.

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.