REZI

Private Equity CD&R Pours $400M into Resideo Technologies ($REZI) as Morgan Stanley Sets $35 Target

08/26/2025 23:49

Resideo Technologies ($REZI) has emerged as a hot topic among investors recently. This home automation and security solutions company, spun off from Honeywell in 2018, has maintained steady growth and currently provides technology solutions to over 150 million residential and commercial spaces worldwide. The company owns renowned brands like Honeywell Home and First Alert, building a stable revenue structure through its Products & Solutions and ADI Global Distribution segments. The most remarkable development has been the unprecedented buying spree by private equity firm CD&R Channel Holdings. Starting with a massive purchase of 5.75 million shares worth $100 million on May 9, 2025, they followed up with another 4.48 million shares worth $100 million on July 25. What's even more striking is that their buying momentum hasn't slowed in August. From August 8 to 25, they've been purchasing hundreds of thousands of shares almost daily, investing over $400 million total. This appears to be strategic investment based on strong conviction about the company's value, rather than mere portfolio adjustment. This massive buying has brought dramatic changes to the stock price. After plummeting to $15.62 in April, shares have surged alongside CD&R's concentrated purchases. Particularly notable was the 27% spike to $28.52 on July 30, right after the $100 million purchase at $22.33 was disclosed on July 25. The stock has continued its upward momentum through August, trading with high volatility in the $25-34 range. CD&R's buying pattern shows they're willing to pay higher prices as the stock rises, suggesting their perceived intrinsic value far exceeds current market prices. CD&R Channel Holdings is a private equity fund operated by Clayton, Dubilier & Rice, a top-tier investment firm specializing in middle-market buyouts. Their massive investment appears to go beyond pure financial investment, likely considering business restructuring or strategic pivots for Resideo. Indeed, the company is pursuing a spin-off of its ADI Global Distribution segment, aligning with CD&R's investment thesis for value creation. The company's fundamentals support this investor interest. Q2 results showed revenue of $1.94 billion (up 22.3% YoY) and adjusted EPS of $0.66 (beating estimates of $0.54). Particularly impressive was the P&S segment's gross margin of 42.9%, marking nine consecutive quarters of improvement. The ADI segment also performed well, benefiting from the Snap One acquisition and e-commerce channel growth (up 19%). Annual revenue guidance was raised to $7.45-7.55 billion. On August 12, Morgan Stanley upgraded the stock from 'Equal-weight' to 'Overweight' with a $35 price target. Analysts credited strong Q2 results and the elimination of structural investor concerns through termination of the Honeywell indemnification agreement. The one-time $1.59 billion payment removes future uncertainties, which was viewed positively. For investors, several key indicators warrant monitoring. Whether CD&R's buying continues, especially at price levels above $30, will be crucial. The Q3 earnings announcement (expected in November) may reveal specific timing and conditions for the ADI spin-off, potentially creating additional stock volatility. Achievement of Q3 guidance (revenue $1.85-1.90 billion, adjusted EBITDA $220-240 million) should also be closely watched. Risk factors include valuation concerns after the stock's 49% year-to-date gain and uncertainty about when CD&R's buying might conclude. Additionally, cyclical volatility in construction and housing markets could directly impact the business, requiring ongoing monitoring of macroeconomic indicators. However, current data supports an overall positive investment scenario. In conclusion, CD&R Channel Holdings' remarkable buying spree appears to be strategic investment based on strong conviction about the company's intrinsic value and future growth prospects, rather than speculative trading. Combined with strong earnings improvement, Morgan Stanley's upgrade, and value realization expectations through the ADI spin-off, the investment attractiveness has significantly increased.