The capex intensity is really the key concen here. I agree that paying 20x FCF for a business that needs to spend 10% of revnue on capex feels steep, even with the refrigerants segment pulling those strong margins. The M&A pivot is interesting tho, especially since they havent done much of it in almost a decade. Could go either way but at least the balance sheet gives them room to experiment witout too much risk.
Excellent deep dive on the Solstice spinof! Your point about the business being capital intensive (29% of consolidated Honeywell capex but only 14% of cash flows) really caught my attention. That's a big red flag for anyone thinking this will be a cash cow right away. The fact that they're guiding to elevated capex through 2026 before normalizing back to mid single digits means cash generation will be constrained in the near term. I agree with your valuation assesment that 10 to 12x EBITDA seems like the right range, which at 20x FCF doesn't leave much margin of safety. What I find most intriguing is the semiconductor and data center exposure in the ESM segment that isn't yet showing up in the revenue growth. If that starts accelerating, it could change the story materially. Also appreciate the Elliott Management reference valuing it at 13.5x EBITDA minus capex, which aligns pretty well with your $50 to 60 per share esimate. Will definitely be watching for that $40 level you mentioned!
Really apreciate the detailed breakdown here. The 40% EBITDA margins on the refrigerant business are wild, but the elevated capex spending (10% of revenue!) over the next couple years is a real drag on returns. I think your skepticism on valuation is warrented given the capital intensity. The fact that they haven't done any M&A for almost a decade and now suddenly want to pivot to bolt-on acquisitions is interesting but also makes me a bit nervous. Seems like managment might struggle to deploy capital efficiently at first. Still, the 70% cash conversion target and strong positioning in refrigerants and semiconductor chemicals could make this worth a look if it drops to your $40 target.
Great analysis on Honeywell's Solstice spin-off. The point about the business being capital intensive (29% of consolidated capex for only 14% of operating cash flows) is really insightful. I agree that the valuation will likely be rich given Honeywell's "high perfomance conglomerate" reputation. The lack of M&A track record over the past decade combined with management's newfound focus on bolt-on acquisitions is definitely something to watch closely. The $40-50 range seems like a reasonable entry point given the elevated capex cycle ahead.
Really appreciate the detailed cash flow analysis here. The capital intensity issue you highlighted is crucial—$390M capex in 2025 (>10% of revenue) is a significant drag on FCF generation, especially with the elevated spending expected for the next couple years. Your point about SpinCo being 14% of Honeywell's OCF but 29% of capex really captures the issue. The 70% cash conversion target seems optmistic given the near-term capex needs. I'm also curious how the M&A strategy will play out given they haven't done acquisitions in nearly a decade. The refrigerants business has great margins (39%!) but the flat revenue growth in 2022-2025 is concerning. Your $40 price target makes sense given the 20x FCF valuation at 10x EBITDA. Will be watching how this trades post-spin.
Will you be looking at the Dupont spinoff? I think the RemainCo might be more interesting than this one.
They also have 12% of revenues from Uranium conversion. With current market craziness could be a potential multiple upside here
The capex intensity is really the key concen here. I agree that paying 20x FCF for a business that needs to spend 10% of revnue on capex feels steep, even with the refrigerants segment pulling those strong margins. The M&A pivot is interesting tho, especially since they havent done much of it in almost a decade. Could go either way but at least the balance sheet gives them room to experiment witout too much risk.
Excellent deep dive on the Solstice spinof! Your point about the business being capital intensive (29% of consolidated Honeywell capex but only 14% of cash flows) really caught my attention. That's a big red flag for anyone thinking this will be a cash cow right away. The fact that they're guiding to elevated capex through 2026 before normalizing back to mid single digits means cash generation will be constrained in the near term. I agree with your valuation assesment that 10 to 12x EBITDA seems like the right range, which at 20x FCF doesn't leave much margin of safety. What I find most intriguing is the semiconductor and data center exposure in the ESM segment that isn't yet showing up in the revenue growth. If that starts accelerating, it could change the story materially. Also appreciate the Elliott Management reference valuing it at 13.5x EBITDA minus capex, which aligns pretty well with your $50 to 60 per share esimate. Will definitely be watching for that $40 level you mentioned!
Really apreciate the detailed breakdown here. The 40% EBITDA margins on the refrigerant business are wild, but the elevated capex spending (10% of revenue!) over the next couple years is a real drag on returns. I think your skepticism on valuation is warrented given the capital intensity. The fact that they haven't done any M&A for almost a decade and now suddenly want to pivot to bolt-on acquisitions is interesting but also makes me a bit nervous. Seems like managment might struggle to deploy capital efficiently at first. Still, the 70% cash conversion target and strong positioning in refrigerants and semiconductor chemicals could make this worth a look if it drops to your $40 target.
Great analysis on Honeywell's Solstice spin-off. The point about the business being capital intensive (29% of consolidated capex for only 14% of operating cash flows) is really insightful. I agree that the valuation will likely be rich given Honeywell's "high perfomance conglomerate" reputation. The lack of M&A track record over the past decade combined with management's newfound focus on bolt-on acquisitions is definitely something to watch closely. The $40-50 range seems like a reasonable entry point given the elevated capex cycle ahead.
Really appreciate the detailed cash flow analysis here. The capital intensity issue you highlighted is crucial—$390M capex in 2025 (>10% of revenue) is a significant drag on FCF generation, especially with the elevated spending expected for the next couple years. Your point about SpinCo being 14% of Honeywell's OCF but 29% of capex really captures the issue. The 70% cash conversion target seems optmistic given the near-term capex needs. I'm also curious how the M&A strategy will play out given they haven't done acquisitions in nearly a decade. The refrigerants business has great margins (39%!) but the flat revenue growth in 2022-2025 is concerning. Your $40 price target makes sense given the 20x FCF valuation at 10x EBITDA. Will be watching how this trades post-spin.