Honeywell Aerospace: The Growth Opportunity Lies In Its Supply Chain
Honeywell Aerospace, which has been publicly traded since June 2026, currently faces a significant gap between the high demand for its aviation products and its ability to fulfill those orders. While the company is a primary provider of aircraft control systems and engines, its third-quarter revenue grew by a modest 2.4 percent. This figure stands in stark contrast to the company's order book, which saw a robust 9 percent increase over the last year. Currently, the firm is sitting on a portfolio of orders valued at $19.3 billion. Analysts suggest that if the manufacturer can successfully resolve its production hurdles by 2027, the company could see a substantial surge in revenue. Based on these growth prospects and a current stock price hovering around $160, the equity maintains a Buy rating.
Strong Demand and Growing Order Portfolio
The financial data for the third quarter shows that Honeywell Aerospace generated $4.64 billion in revenue. During this period, the company reported an adjusted EBIT of $1.16 billion, representing a 4 percent increase over the previous year. Adjusted earnings per share reached $2.21. While the reported EBIT margin was 25 percent, this figure was bolstered by approximately $50 million in refunds related to import duties. Excluding those one-time refunds, the margin would have settled at roughly 23.9 percent, which would have resulted in a minor decline for the adjusted EBIT. Looking ahead to the next quarter, management anticipates a margin of approximately 23.5 percent.
Adjusted Earnings and Profit Forecasts
Despite the production challenges, the company has raised its full-year profit expectations. Honeywell Aerospace now projects adjusted earnings per share to fall between $7.85 and $8.00, an increase from the earlier guidance of $7.60 to $7.90. It is important to note that the expected operating profit for the year remains largely the same. The upward revision in earnings per share is primarily attributed to a more advantageous tax environment and a reduction in internal costs rather than an increase in operational output.
Supply Chain Bottlenecks and Production
The primary obstacle for the company remains its sprawling supply chain. Out of approximately 3,000 suppliers, only 70 are currently meeting their delivery schedules on time. The most significant disruptions are concentrated among 10 specific suppliers responsible for castings, complex machined parts, and bearings. The absence of even a single bearing can prevent the delivery of an entire aircraft component. There are signs of recovery, however, as total production increased by 5 percent in the third quarter compared to the second quarter. One secondary supplier for bearings managed to boost its output by over 80 percent. Nevertheless, bearings continue to be the most problematic item in the inventory, and because the company requires hundreds of them, the supply chain remains a critical bottleneck.
Source: seekingalpha.com · 2026-10-31