Resideo Technologies (REZI): A Somewhat Cheap, But Also Somewhat Unsafe Spin-off from Honeywell
This is a revisit of Resideo Technologies (REZI). My initial write-up of Resideo was done before the stock was spun off from Honeywell. Three things have changed since that initial interest post.
One: Honeywell spun-off Resideo. So, we now have a price on Resideo.
Two: I’ve created a five part scoring system – a checklist of sorts – for the stocks I write up here at Focused Compounding. This helps me more systematically order what stocks I should be writing up for the first time, re-visiting, etc. and what stock ideas I should make less of a priority. I’ll score Resideo using this 5-point checklist later in this article.
Three: Resideo released its first quarterly earnings as a public company. Management hosted an earnings call where they took analyst questions. They put out some earnings slides with that call as well. So, we have a bit of an update since last time.
I can tell you now that this third event is the least interesting. It’s the one I’ll spend the least time talking about. What matters most here is that we now have a price on Resideo stock and I can now score Resideo on my 5-point checklist. Let’s start with the checklist.
The 5 questions I’ll be asking are:
1) Is Resideo stock overlooked?
2) Do I understand the business?
3) Is this a safe stock?
4) Is this a good business?
5) Is this a cheap stock?
I score each question on a scale that goes: -1 (“no), 0 (“maybe”), +1 (“yes”).
Is Resideo stock overlooked? – Maybe (0). The answer can’t be a straight “no”, because this is a spin-off. Spin-offs, in general, lead to stocks being overlooked – at least at first – because shareholders of the bigger company (in this case, the very big company Honeywell) get shares in this much smaller company without doing anything. They may sell the stock without giving it a lot of thought. Also, this spin-off didn’t seem to be a huge focus for value investors and what I did read online from value investors often treated it as something of a throwaway by Honeywell. Basically, not a lot of people are writing about how this is a high quality business. They are writing about how this company is slow growing, fully mature, and includes the burden of paying Honeywell indefinitely to cover environmental liabilities. So, this isn’t a particularly focused on spin-off. But, it’s still a stock with a market cap over $2 billion. It’s listed on a major exchange. It did an earnings call with analysts. I didn’t hear questions from analysts at especially big firms. This is probably a pretty overlooked stock for a $2 billion to $3 billion market cap. But, in the world of the kind of stocks I often look at – it wouldn’t count as overlooked at all. I’ll split the difference and say Resideo “maybe” overlooked (0 points).
Do I understand the business? – Yes (+1). I owned a stock – …Read more