The stock is trading at an average multiple of 14 times earnings. Despite the stock being up 27% since the start of the year, investors are fond of the company given its leadership in attractive markets like commercial aerospace, process management (PM) and technology licensing for refineries and petrochemical plants. Moreover, there are several opportunities for Honeywell to achieve new margin peaks, even absent top-line growth. The company’s cost management initiatives coupled with the concept of organizational efficiency (OEF), are expected to bring margin expansion
Activism keeps this company busy
SPX Corporation (NYSE:SPW) has an activist in its midst who has, among other things, taken direct aim at the company’s compensation practices. Asked at EPG conference about pay and possible changes to better align pay with shareholder returns, CEO Chris Kearney said: “I think our approach on compensation has served us well over the years. We continue to tweak it and try and make sure that it is contemporary and competitive in the market. But fundamentally, our approach towards compensation hasn’t changed.”
This was an interesting line coming from a company that nearly lost a “say on pay” vote at its 2012 annual meeting and got just 67% support on a similar measure at the 2013 annual meeting this month.
The big question is where does SPX go from here? Overall, it has been a disappointing start to an important year. With activist shareholder involved, it seems that pressure will only increase on SPX to sell non-core assets quickly and subsequently increase its share buyback.
Management changes in the quarter (a new head of the Thermal unit, and a new head of the ClydeUnion unit) and increased restructuring in Thermal are positives but they might not be enough. The sale of the Thermal business is proving to be more difficult than expected, but a sale at almost any price will be taken positively. Those who have been following this company know that the thermal unit has seen its profits curtailed as the demand for cooling systems and heat exchangers have slowed down considerably.
The management focus in 2013 will be on internal operations and portfolio management as SPX commented no acquisitions will be done this year. Tangible catalysts like asset sales, pull forward of share buyback, and management changes are likely needed. Shareholder frustration is high on the name.
Final word
Both Rockwell Automation (NYSE:ROK) and Honeywell International Inc. (NYSE:HON) are well-managed companies with bright futures ahead in terms of M&A activity. However, SPX still needs to figure out how it will proceed to become a popular (not notorious) company among investors.
The article Mergers, Spinoffs and Activism Make This Industry an Interesting One originally appeared on Fool.com and is written by Zain Abbas.
Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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