We're significantly trimming a stock that has not gone to plan

Jim Cramer's Charitable Trust is selling 110 Honeywell Technologies shares at roughly $209, halving its remaining position and cutting the portfolio weighting to 0.58% from about 1.15%. Despite management indicating Q3 organic growth is tracking toward the upper end of its 4%-6% range and similar Q4 momentum, the Trust downgraded HON on concerns that Middle East conflict-related revenue losses and supply-chain issues could persist. It also sees downside risk to consensus, as Wall Street forecasts roughly 20% EPS growth in 2027 versus management's 15% expectation; HON shares remain down more than 10% since August despite a 2.6% Wednesday gain.

Analysis

The investable issue is not a modest near-term revenue disruption; it is the embedded earnings bridge. A 15% versus roughly 20% 2027 EPS-growth gap implies consensus is approximately 4% above management’s implied earnings path before allowing for execution risk. For an industrial automation asset, even a 3-5% EPS reset can create disproportionate downside if the market simultaneously removes a turnaround or separation premium; the relevant catalyst window is the next two quarterly reporting cycles, when backlog conversion, regional revenue and margin commentary can force estimate revisions.

HON’s remaining automation portfolio is exposed to a less forgiving mix than pure-play electrification or process-automation peers: delayed Middle East projects can defer high-margin systems and aftermarket work, while supply-chain friction raises working-capital needs before it necessarily appears in reported revenue. ABB and Siemens offer more diversified electrification and digital-industrial exposure, while Rockwell Automation is the cleaner U.S. automation-cycle comparator; relative performance will reveal whether this is company-specific execution or a broader capex slowdown. The cited seller’s position reduction is not itself a meaningful flow signal given its small scale.

Consensus may be underestimating the possibility that management preserves the long-range EPS objective through cost actions, buybacks, or timing rather than organic acceleration. That would limit near-term downside but weaken the quality of the earnings mix and make any multiple re-rating difficult. Conversely, the bearish thesis is falsified if the next report shows automation organic growth at the top end of the range, stable or expanding segment margin, and no reduction in the 2027 earnings framework; in that case, the estimate gap could close through execution rather than cuts.

Key Decisions for Investors

• Do not initiate a directional short solely on this item; wait for the next earnings release or a sell-side 2027 EPS revision cycle. A confirmed reduction toward management’s implied growth path would support a 1-3 month short in HON, with a stop if guidance is reaffirmed and automation margin expands.
• For existing industrial exposure, shift a portion of HON allocation into ABB or Siemens over the next 1-3 months rather than adding beta to HON. The relative thesis is that electrification/digital mix should command greater earnings-quality resilience if project timing remains uneven.
• Use a market-neutral watch trade: long ABB / short HON only if HON underperforms ABB by less than 5% into earnings while consensus estimates remain unchanged. Target a 8-12% relative move on estimate de-risking; exit if HON provides evidence of backlog conversion and lifts medium-term EPS expectations.
• Monitor three falsification datapoints: order/backlog conversion in affected regions, segment operating-margin trajectory, and whether 2027 Street EPS falls below roughly $9.6. Without deterioration in at least one of these, the risk/reward is insufficient for an outright bearish position.