Morgan Stanley upgraded Honeywell’s aerospace unit to overweight on Tuesday, citing a discounted valuation relative to peers and early signs of progress in resolving supply chain bottlenecks. The firm set a $205 price target on the stock, implying roughly 19% upside from its current level of about $172.84.
Honeywell Aerospace, which was spun off from Honeywell International in late June, has underperformed since then, declining roughly 27% through Tuesday’s session. The unit’s shares surged 7.51% on the day of the upgrade, extending gains after the announcement.
Analyst Kristine Liwag of Morgan Stanley highlighted valuation metrics that suggest Honeywell Aerospace is trading at a discount to its peers. The company’s 2028 price-to-free-cash-flow multiple of about 16.8x compares with a peer median of 25.5x, a gap of roughly 35%. Similarly, its 2028 enterprise-value-to-EBITDA ratio of 11.4x sits well below the peer median of 18.3x, a discount of about 38%. The stock’s last twelve months P/E stands at 28.2x, while its enterprise-value-to-EBITDA ratio based on FinQL data is 19.8x.
Liwag noted that Honeywell Aerospace’s free cash flow totaled $2.50 billion, with a net margin of 10.9%. However, a fair-value model estimate places intrinsic value at $167.91, suggesting the stock may be slightly overvalued at current levels.
The aerospace unit faces structural challenges, including a negative book equity position and a debt-to-equity ratio of -283.5%, reflecting liabilities exceeding assets following the spin-off. Nine analysts have revised earnings estimates downward, and the company does not pay dividends, which is atypical for a mature aerospace business.
Supply chain constraints remain a key risk. Management estimates that roughly 2% of the supplier base is currently bottlenecking output. One critical supplier has past-due components valued between $15 million and $16 million, the resolution of which could unlock ‘hundreds of millions’ in revenue. To address these issues, Honeywell Aerospace is investing more than $1 billion in supply chain improvements and has added 50 new suppliers in the first half of 2026.
Execution risks persist, particularly as the company prepares for a challenging year-over-year comparison in the third quarter. Commercial aftermarket revenue grew 23% in Q3 2025, and management has acknowledged overestimating the pace of recovery following the spin-off.
The upgrade reflects Morgan Stanley’s view that valuation support and early supply chain stabilization outweigh near-term execution headwinds for Honeywell Aerospace.
