Jefferies Financial analyst Sheila Kahyaoglu stated that Honeywell (HON.US)'s plan to spin off its Advanced Materials business will create a cleaner business focused on three major trends. The firm has a "hold" rating with a target price of $220.

Honeywell said earlier on Tuesday that the company expects to spin off its plan to shareholders in a tax-free manner, with the goal of completing it by the end of 2025 or early 2026.

On Tuesday, Kahyaoglu wrote in a report: "This transaction further simplifies Honeywell's business, with Advanced Materials considered beyond the three major trends of automation, aviation futures, and energy transformation." For the remaining business, this simplifies the strategic focus around these trends, enhances organic growth, reduces cyclicality, and lowers capital intensity.

Jefferies Financial stated that prior to the disclosure of financial structure details, the valuation of the Advanced Materials business could be between $8 billion and $12 billion, calculated within an 8 times mid-term EBITDA range.

Kahyaoglu added in the report that further transactions, share buybacks, and reducing "stranded costs" could mitigate the impact of the rotation on Honeywell's earnings per share. "For the Advanced Materials business, this transformation creates an attractive portfolio with a more flexible, more optimized capital allocation strategy."

Before proceeding with the split, Honeywell recently announced four acquisitions as part of its disciplined capital deployment strategy. The company stated it focuses on high-return acquisitions that will drive future growth of its portfolio and align with the three strong major trends.