Activist investor Trian Partners has a stake in General Electric, (NYSE:GE) while Dan Loeb's Third Point has a stake in its counterpart, Honeywell (NYSE:HON). When it comes to who'll see the best returns, in their respective stocks, over the next few years - Loeb might well win this battle.
I've talked about both activist targets in the past. For General Electric, the company is intriguing if it becomes apparent that Immelt is no longer fit for the job. For Honeywell, it's about giving the relatively new CEO a chance. But Loeb is hoping the $100 billion industrial giant, Honeywell, will spinoff its largest business - the aerospace division - and unlock $20 billion in value. Aerospace generates over a third of the company's annual revenues. The problem, as Loeb sees it, is that aerospace is a laggard with growth. Over the last five years, the aerospace average sales growth is less than 1% annually.
The biggest part of that $20 billion value unlock will come from a valuation re-rating. Without the lagging aerospace business, Honeywell would trade more in line with industrial peers that don't have an aerospace business - i.e. Emerson (NYSE:EMR), 3M (NYSE:MMM), Rockwell (NYSE:ROK) etc. Combined, those rivals trade at 23 times next year's earnings, while Honeywell is stuck at 17 times.
