YB new stock pitches (Wed, Mar 25)

Honeywell International Inc ($HON) presents a compelling opportunity through its three-way breakup, with Aerospace (HONA) and Automation spin-offs targeted for Q3/H2 2026, offering 39% upside to $307 per share versus the current $221.50 price. The company currently trades at a conglomerate multiple of approximately 17x EV/EBITDA, which misprices two fundamentally different businesses with distinct margin profiles and peer valuations. HONA's EBITDA margin of 27.3% ranks second in its peer group (behind only TransDigm) and well above the peer median of 21%, with gross margin at 43% and operating margin at 24.7%, justifying the peer median multiple of 29.5x EV/EBITDA applied to $4,750M EBITDA to yield approximately $207 per share standalone equity value, though FCF conversion of 55% sits near peer median representing a relative weakness. Automation's EBITDA margin of 22.1% and FCF conversion of 57% sit at peer median levels, and applying the peer median multiple of 16.2x to $4,400M EBITDA implies approximately $101 per share, with the current conglomerate structure dragging down Automation's valuation inconsistent with its standalone software and services profile. The EV/EBITDA sensitivity analysis ranges from $187 (low/low scenario) to $439 (high/high scenario), while the P/FCF range spans $151 to $458. Key risks include $202M in HONA standalone costs (including a $150M trademark license), Flexjet litigation resulting in $312M Q4 2025 revenue reduction, Automation's wide peer multiple dispersion, and $1.5-2.0B in guided one-time separation costs. Primary catalysts include the June 3, 2026 HONA Investor Day in Phoenix (the key near-term price discovery event presenting the first standalone financial model, capital allocation, and dividend policy), Form 10 SEC registration statement approval (filed March 3, 2026), and the Q3 2026 separation and first trading day when pure-play re-rating typically produces the bulk of value unlock. For leveraged exposure, January 2027 $230 call options offer approximately 10x leverage at a 13% breakeven with the lowest implied volatility at 28% among screened contracts.

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TerraCom Limited (TER.AX) is an Australian thermal coal miner positioned as a derivative play on LNG market disruption following Iran's missile attack on Qatar's Ras Laffan Industrial City, which caused extensive damage reducing Qatar's export capacity by 17% with potential repairs taking 3-5 years. Asian utilities heavily dependent on LNG imports (Japan 87%, South Korea 81%) are switching to coal, with South Korea lifting its 80% coal generation capacity cap, driving Newcastle (NEWC) thermal coal prices toward $150/t with economics supporting $200/t at current $20/MMBtu JKM LNG prices. TER's main asset, Blair Athol, produces 5500 kcal/kg low-sulfur coal sold primarily to Japan, South Korea, and India, realizing approximately 75% of NEWC prices, with production cash costs of A$105-115/t plus A$10mm sustaining capex and A$10mm G&A. At $150/t NEWC, TER generates approximately A$40mm free cash flow representing a ~30% FCF yield (adjusting for net cash), rising to over 50% yield at $200/t NEWC, with accumulated NOLs shielding cash taxes and franking credits enabling tax-efficient distributions. The stock has been decimated from 2023-2025 due to the thermal coal bear market, weather disruptions affecting FY25 sales (1.54Mt vs 1.8Mt guidance), logistical issues at Dalrymple Bay, underperforming South African assets, and dilutive equity raises, but recently raised A$60mm at A$0.06/share in January 2026, providing A$62mm cash position. Growth catalysts include the Moorlands JV with Wintime Energy targeting 1.9Mtpa production starting mid-2026 (expandable to 4Mtpa), 14Mt marketable JORC reserves supporting life-of-mine through 2033 at 1.6-1.8Mtpa, and potential value from South African assets if coal prices enable economically viable trucking to Maputo for exports. The investor initiated a small 5% position as an event-driven call option on prolonged LNG disruption risk, noting TER is a high-risk, high-beta single-asset play higher on the cost curve that achieved 10x returns and 50%+ dividend yields during the 2022 bull cycle, with every $10/t NEWC increase flowing 80-90% to bottom line, while suggesting safer alternatives include Whitehaven Coal (WHC.AX) and New Hope Corporation (NHC.AX).

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Columbus McKinnon Corporation (CMCO), a global material handling solutions manufacturer and the world's second-largest hoist company with 23% global market share, announced in February 2025 the acquisition of competitor Kito Crosby from KKR for $2.7 billion at 10x EBITDA, simultaneously missing numbers and guiding down on its struggling base business with tepid book-to-bill. The deal adds $1.2 billion in revenue and $260 million in EBITDA to CMCO's existing $150 million EBITDA business, taking pro forma leverage to 8.4x pre-synergies ($3,240 million in net debt plus preferreds divided by $385 million EBITDA) or 6.3x assuming full $70 million synergies by year three. The capital structure includes $3.1 billion debt, $500 million cash, $160 million from a recent regulatory-driven divestiture, 29 million shares, and $800 million in Clayton Dubilier & Rice preferred shares at 7% dividend rate which will PIK, convertible at CD&R's request with a $38 strike (representing 42.5% ownership if converted). The short thesis centers on poor CEO execution, empire building, uninvestable leverage levels, mixed macro uncertainty for industrials with significant non-US exposure (56% North America, 21% EMEA, 19% APAC), and skepticism around achieving ambitious synergy targets given the company's track record of missing numbers. The downside target is $7 per share in FY28 assuming $450 million EBITDA at an 8x multiple, compared to the company's historical 8x EBITDA multiple when better run, with the deal potentially not closing requiring a $160 million break fee. Catalysts include merger closing and results.

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