First pass, exciting spin. Street loves it. $140 – $180 price targets across the board.
100% buys. Second pass, not so fast. There could be a trade if you are bullish AI, but
we have our reservations.

The Company stole our thunder, but there’s more to go. High FCF business turning its attention to debt through OMRs; bought back nearly 10% of $650m 3.875% sr. notes due 2029 in a single quarter and Company bid for bonds can drive further yield tightening. Flexible covenants provide refi optionality. An early par takeout is on the table. Forget 10% ytm, think of this as 14% yield-to-go-current, with real potential to pull forward returns. Sub-3yr duration attractive in current rate environment.

We see only modest (Fed lexicon) idiosyncratic downside (i.e. market risk aside) while gaining exposure to attractive idiosyncratic upside in the form of a strategic bid for SpinCo. Fallback plan is modest multiple expansion at SpinCo which seems like low hanging fruit. Either way there is 20% – 50%+ upside potential in this corporate action name. Market pullbacks present good entry points for a starter position.

Earnings super-cycle underway driven by recent policy changes and global supply disruptions. More lasting than transitory. Cash harvested to reduce debt, de-risk capital structure and warrant multiple expansion. Further momentum to come from 2027 monetization or valuation signal of renewable energy unrestricted subsidiary. Upside stock price >$75.00/shr. (+40%). However, many risks abound, up/down not meaningfully asymmetric, isolating the idiosyncrasy through hedging is difficult and this might just be an oil trade with near-term retracement a big risk.

Fallen angel reprioritizing capital allocation towards debt reduction. Motive + means = powerful combination, and aligning with management when they are focused on reducing debt is a proven winning formula. We see them following the FMC Corp. playbook and achieving similar results. Catalyst-rich investment horizon should drive yield tightening. 150bps tightening from here will provide mid-to-high teens returns.

Not a SPCX mispriced arb. Not a cheap proxy for SPCX. But an interesting pairs trade nonetheless. Neutralize the SPCX value within ECHO to play the other multiple shots on goal for meaningful upside.

Meaningfully de-risked and simplified situation as well as aligned incentives makes previously un-investible longer-dated bonds now attractive. Viable path forward with meaningful catalyst in the form of a BLCO share monetization. Worth a look if you’ve previously passed because of the unattractive profitability-to-brain-damage ratio.

PSKY to issue 10-year warrants to shareholders at close of WBD acquisition that we estimate could be worth $3.00 – $7.00+ per share vs. the current $10.86 share price. We do not think these warrants are priced into the stock. The warrants will be listed on the Nasdaq and traded separately from PSKY Class B Common Stock. Reasonable assumptions about pro forma EBITDA and fair multiple + value of warrants suggests 50%+ upside to PSKY stock as a result of this overlooked value.

PARA 6.375% Jr. Subordinated Notes due 2062 (“PARA Hybrids”) have a coupon reset to 5YR UST + 3.999% on March 30, 2027; at the current 5YR that’s an 8.5% coupon and at the current price of 81.25, that’s a 10.5% current yield and an 11.4% ytw. Yes, you’re sitting at the bottom of what will be an $85bn+ debt stack, but you’re also sitting on top of what will be a $55bn pro forma market cap and the market is mispricing the Ellison backstop for controlling this media asset. Risk of default is minimal. 100bps of tightening provides a 20% return in 1 year. Right tail the WBD deal is terminated and bonds go back to par for a 30% return.

Resideo Technologies Inc (“Resideo” or “REZI”) will spin off its distribution arm, ADI Global Distribution (“ADI”), via a tax-exempt distribution of 1 ADI share for every 2 REZI shares on August 3, 2026 at 5:00 p.m. ET (with fractional shares being paid out in cash). Resideo will continue to trade on the NYSE under ticker “REZI” while ADI will start trading on the NYSE under ticker “ADIG”.

All told, we fail to see a compelling rationale for the transaction since we view the businesses as being synergistic with each other. This, coupled with a sluggish housing industry (e.g., elevated interest rates, weak consumer sentiment, & volatile geopolitics), we assign a SELL rating to pre-spin shares of REZI and a price target of $31.68, which is based on 8.2x our 2027E EBITDA of ~$950 million ($19.70 for P&S/RemainCo based on 8.1x our 2027E EBITDA of ~$627 million and $23.97 for ADI Global Distribution/SpinCo based on 8.4x our 2027E EBITDA of ~$324 million). Within this framework, we assume the Fed keeps rates constant for the remainder of 2026 and Resideo’s 2030 financial roadmap remains intact. Key risks to our thesis include: 1) earlier-than-expected rate cuts; 2) unexpected strengthening of the job market; 3) regulatory relief; 4) significant ‘beat-and-raise’ execution; and 5) major strategic pivots.

To be clear, we think both businesses are well-run (continuing on Honeywell’s legacy and culture) and are structurally fine but that the market is already pricing in the standard benefits of a spin (e.g., increased operating efficiency & differing growth profiles/valuation multiples) as evidenced by the stock’s reaction post-investor days even though we do see those attributes necessarily applying in REZI’s particular case. Further, we also think the market seems to be valuing REZI based off pure-play competitors that are more established in their particular field, which we think is overly generous.

In terms of valuation, we assume that each standalones’ 2030 financial roadmap unfolds as projected but apply a discounted valuation multiple relative to peers. For P&S, we discount the blended average multiple by 8x (1x for utilizing pure-play peers which deserve higher multiples, 1x for near-term macro headwinds, 1x for residential exposure, 1x for risk-off sentiment coupled with memory chips shortage even though P&S products have low demand for it, 1x for operating in ‘melting ice cube’ industry, 1x for spin without strong rationale, 1x for elevated levered balance sheet, and 1x for the lack of a dividend versus peers averaging 1.4%). For ADI, we utilize the average excluding the extremes/outliers and discount it by 6x (1x for near-term macro headwinds with high Americas exposure, 1x for volatile energy costs potentially squeezing margins further, 1x for elevated risk of international supply chain disruption amid frequent geopolitical strife, 1x for spin without strong rationale, 1x for somewhat poor initial credit rating coupled with lack of track record as an individual company, and 1x for lack of a dividend versus peers averaging 1.5%). For context, REZI has been trading at an average NTM EV/EBITDA multiple of 7.3x and 6.5x over 3- and 5-years, respectively, as such despite the significant discount we think it is fair and may even be leaning towards the conservative side.

Considering the low double digit downside implied by our fair value estimate (see Exhibit 12), we initiate pre-spin coverage with a SELL rating.