REZI

Resideo Technologies($REZI) Soars on $255M PE Buying Spree, Morgan Stanley Sets $35 Target - Value Rerating Begins?

08/21/2025 23:54

Resideo Technologies ($REZI) is capturing investor attention as the mid-cap home comfort and security solutions provider navigates a dramatic turnaround story, highlighted by massive institutional buying and improving fundamentals. The most striking development is CD&R Channel Holdings' aggressive accumulation campaign. This major shareholder has purchased $255 million worth of shares from May through August, starting with a $100 million stake on May 9th, followed by another $100 million on July 25th, and then nearly daily purchases throughout August totaling an additional $55 million. As the investment vehicle of renowned private equity firm Clayton, Dubilier & Rice, this concentrated buying reflects strong conviction in the company's intrinsic value. Interestingly, this contrasts sharply with management's earlier actions. In November 2024, when shares traded in the $25-27 range, executives conducted major sales: CEO Jay Geldmacher sold $1.01 million worth, President Robert Aarnes disposed of $2.59 million, and other executives collectively sold over $4 million. While potentially rational at the time, this timing now appears unfortunate given current developments. The stock's journey explains the context behind these insider moves. After reaching $27 in November 2024, shares plummeted nearly 50% to a low of $14.69 in April 2025. However, the recovery began in May and shares now trade around $32. Notably, CD&R's buying spree commenced near these lows, demonstrating astute market timing. Operational performance supports this renewed optimism. Q2 revenue surged 22% year-over-year to $1.94 billion, with adjusted EPS of $0.66 handily beating analyst expectations of $0.54. The ADI Global Distribution segment particularly shined with 33% growth, driving overall momentum. Management raised full-year 2025 guidance based on this strong performance. A major overhang was also resolved. The July 30th announcement detailed a $1.59 billion lump-sum payment to settle all future obligations under the Honeywell indemnification agreement. While creating a one-time charge, this eliminates long-standing uncertainty that had weighed on valuation. Perhaps most significantly, the planned spin-off of ADI Global Distribution promises to unlock substantial value. By separating this high-growth security and smart home distribution business into an independent public company, investors will gain pure-play exposure to both entities while enabling separate valuations. ADI's robust growth profile could command premium multiples as a standalone entity. Wall Street is taking notice. Morgan Stanley upgraded shares to Overweight on August 12th, raising the price target from $24 to $35. The firm cited the removal of structural impediments following the Honeywell settlement and strong Q2 performance as key catalysts. However, investors should remain cognizant of risks. The debt-to-equity ratio remains elevated at 87%, and the upcoming Honeywell payment will impact cash flow. As a building materials-adjacent company, Resideo remains sensitive to interest rate and economic cycles. The stock's beta of 2.16 also indicates above-average volatility. Nevertheless, the weight of evidence suggests positive momentum is building. The PE fund's massive accumulation appears fundamentally driven rather than speculative, supported by improving operations, value-creating corporate actions, and analyst upgrades. Key indicators to monitor include CD&R's continued buying activity, Q3 earnings results, and specific timing details for the ADI spin-off. At $32, shares still trade below the $35 analyst target, suggesting potential upside remains. Given the stock's volatility profile, appropriate risk management remains essential for investors considering this compelling turnaround story.