Resideo Technologies Surges After Honeywell Indemnity Buyout Removes Overhang, Boosts Growth Story

Resideo Technologies has removed a major overhang with the $1.59 billion buyout of Honeywell International's indemnification, boosting its growth story. Morgan Stanley analyst Erik W Woodring upgraded Resideo from Equal-weight to Overweight, raising the price forecast from $24 to $35. The analyst sees a three-part case for Resideo's growth, including continued execution, the end of the Honeywell indemnity, and the planned ADI Global separation in 2026.

Resideo Technologies, Inc. (NYSE: REZI) has significantly bolstered its growth prospects by ending its long-standing indemnification agreement with Honeywell International Inc. (NASDAQ: HON) in a $1.59 billion buyout. This move has removed a major overhang, paving the way for cleaner earnings and an ADI Global separation, as outlined by Morgan Stanley analyst Erik W. Woodring [1].

Woodring upgraded Resideo from Equal-weight to Overweight, raising the price forecast from $24 to $35. He cited three key factors: Resideo's continued execution, the termination of the Honeywell indemnity, and the planned ADI Global separation in the second half of 2026 [2]. The analyst noted that the termination of the Honeywell indemnity removes a structural overhang, clearing a path to about $3 in calendar year 2026 earnings power [1].

The indemnity agreement, which required $140 million in annual cash payments through 2043, added unnecessary complexity and weighed on the company's story. Resideo agreed to pay Honeywell $1.59 billion, funded with about $400 million in cash and roughly $1.2 billion in debt, to terminate the agreement [1]. This move is expected to add an estimated 40 cents to annual non-GAAP EPS, even after financing costs, according to Woodring [1].

The analyst's new CY26 EPS estimate of $3.02 stands 23% above consensus, reflecting the market's underestimation of the impact of canceling the Honeywell indemnification [1]. The planned ADI Global separation further sharpens the sum-of-the-parts story, unlocking potential value through a spinoff transaction [2].

Resideo's shares have been trading higher by 14.02% to $31.33 at last check, reflecting investor optimism about the company's growth prospects [1].

References:
[1] https://finance.yahoo.com/news/resideo-technologies-pops-honeywell-indemnity-180735165.html
[2] https://www.investing.com/news/analyst-ratings/morgan-stanley-upgrades-resideo-technologies-stock-to-overweight-on-earnings-potential-93CH-4184868