REZI

Resideo Technologies ($REZI) Surges 30% in August as Major Shareholder's $240M Buying Spree Fuels Rally

08/19/2025 00:23

Resideo Technologies ($REZI) has captured intense investor attention in recent weeks, surging over 30% in August alone to hit a new high of $32.83. What's driving this dramatic rally in the smart home solutions company? Resideo, spun off from Honeywell in 2018, is a global leader in sensing and control products for residential markets. The company manufactures thermostats, security systems, smoke detectors, and other home automation devices under well-known brands like Honeywell Home and First Alert. Through ADI Global Distribution, it also distributes low-voltage security and smart home products. With products installed in over 150 million residential and commercial spaces worldwide, Resideo has built a solid business foundation. The most notable development is major shareholder CD&R Channel Holdings' aggressive investment expansion. After purchasing $100 million worth of shares in May and another $100 million in July, they continued their buying spree in August. In just 10 days from August 8-18, they acquired an additional $43 million worth of stock. Remarkably, they maintained their buying even as the stock price climbed into the $27-31 range, demonstrating strong conviction. This confidence is backed by solid earnings momentum. Resideo has delivered four consecutive quarters of earnings beats, with the most recent Q2 results showing adjusted EPS of $0.66 versus the $0.54 estimate - a 22% beat. Revenue surged 22.3% year-over-year to $1.94 billion, with an impressive 8% organic growth rate. Morgan Stanley's upgrade on August 12th from 'equal-weight' to 'overweight' with a $35 price target also fueled the rally. The firm cited strong Q2 performance and completion of the Honeywell indemnification agreement as removing structural impediments for investors. The Honeywell settlement is a double-edged sword. While Resideo's one-time payment of $1.59 billion eliminates all future monetary obligations - a long-term positive - it represents significant near-term cash outflow. However, the company generates over $400 million in annual operating cash flow, suggesting financial health remains intact. Concern arises from executive stock sales. In November, executives including the CEO sold over $100 million worth of shares, and recently in August, the President and EVP sold $13 million and $11 million respectively. While this could represent routine option exercises or cash diversification, it contrasts sharply with the major shareholder's aggressive buying. The planned spin-off of ADI Global Distribution deserves attention. This segment accounts for about 65% of total revenue and showed 33% growth in Q2. Separating it into an independent public company could unlock value by allowing each business to pursue focused strategies tailored to their unique market dynamics. Investors should weigh several factors at current price levels. Positively, continued earnings surprises, margin expansion, and most importantly, the major shareholder's repeated large-scale purchases support the bullish case. CD&R's continued buying even after significant price appreciation suggests they view current levels as still undervalued. However, caution is warranted. While the forward P/E of 13.7x appears reasonable, the stock's 34%+ year-to-date gain may limit near-term upside potential. Additionally, ongoing executive sales hint that insiders may view current prices as fair or slightly elevated. The upcoming Q3 earnings release represents a key catalyst. Management guided for Q3 revenue of $1.85-1.90 billion, and given the track record, an upside beat seems likely. Structural growth drivers remain intact, including 19% growth in ADI's digital channel sales. Considering the major shareholder's confidence and solid fundamentals, Resideo appears attractive for medium-to-long term investors. However, given the recent sharp rally and some insider selling, careful timing of entry points may be prudent.