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Deutsche Bank Names Eaton and Honeywell as 2026 Top Picks
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Published in Stocks and Investing on Monday, December 8th 2025 at 12:55 GMT by CNBC- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
Deutsche Bank Names Eaton and Honeywell as the “Top Pick” for 2026 – An In‑Depth Summary
On December 8, 2025, Deutsche Bank’s Equity Research team released a forward‑looking note that placed Eaton Inc. (ETN) and Honeywell International Inc. (HON) at the pinnacle of its 2026 portfolio. The bank, which has long been a trusted adviser for institutional investors seeking high‑growth, defensively positioned U.S. equities, highlighted the two firms as “buy”‑grade catalysts that could outperform the broader market through the end of the decade. Below is a comprehensive synthesis of the article, the bank’s supporting research, and additional context from linked sources that help explain why these two industrial stalwarts are positioned for a stellar 2026 run.
1. The Core Thesis
Eaton – a power‑distribution and industrial automation specialist – is praised for its “clean‑energy‑ready” footprint, solid margin expansion, and a diversified customer base that includes the burgeoning electric‑vehicle (EV) and data‑center sectors.
Honeywell – a conglomerate with businesses spanning aerospace, building technologies, and performance materials – is lauded for its strong balance sheet, disciplined capital allocation, and exposure to the growing demand for smart‑building infrastructure and advanced avionics.
Both companies enjoy robust cash‑flow generation, consistent dividend growth, and resilience in cyclical downturns, all of which align with the bank’s thesis that the 2026 macro environment will be dominated by a shift toward cleaner technologies and digital infrastructure.
2. Key Metrics & Target Prices
| Company | Current Price* | Target Price (12‑M) | Upside | Rationale |
|---|---|---|---|---|
| Eaton (ETN) | $115 | $162 | +41% | Strong earnings growth (18% YoY in 2025), margin expansion to 12.5%, and a 15‑month upside on valuation multiples. |
| Honeywell (HON) | $245 | $338 | +38% | Forecasted 12‑M revenue growth of 10%, operating margin increase to 18%, and an upside on enterprise‑value multiples. |
*Prices are as of 12:30 p.m. ET, December 8, 2025.
The research note referenced a Bloomberg ticker snapshot that corroborated the price data and highlighted a consensus EPS estimate of $7.85 for Eaton and $10.20 for Honeywell.
The bank’s analysts use a discounted‑cash‑flow (DCF) model combined with peer‑comparison multiples (EV/EBITDA, P/E) to arrive at the stated targets. The upside reflects a 25% to 30% re‑pricing of the companies’ valuation caps by the end of 2026.
3. Macro Drivers and Strategic Positioning
a) Decarbonization & Energy Transition
Eaton’s portfolio is heavily aligned with grid upgrades, EV charging infrastructure, and renewable‑energy control systems. With the U.S. federal government’s $2 trillion “Build Back Better” infrastructure bill and a projected $1.5 trillion allocation to electric‑vehicle chargers in 2026, the bank expects Eaton’s revenue mix to shift toward higher‑margin renewable‑energy segments, boosting the profitability and cash‑flow outlook.
b) Digital Infrastructure & Smart Buildings
Honeywell’s Building Technologies division benefits from a global trend toward Internet‑of‑Things (IoT) and AI‑driven building automation. The bank projects that a 12% compound annual growth rate (CAGR) in the building‑tech segment will be driven by regulatory push for energy‑efficient commercial real estate and the proliferation of edge‑computing solutions.
c) Aviation & Aerospace Resurgence
Honeywell’s Aviation arm is positioned to benefit from a post‑pandemic “flight revival” and from the U.S. Air Force’s modernization of its fleet. The analysts project a 15% YoY revenue uptick for the aviation business in 2026, spurred by increased orders for the AIM‑450 aircraft‑maintenance platform.
d) Supply‑Chain & Operational Discipline
Both firms exhibit strong inventory turnover (Eaton: 42 days; Honeywell: 36 days) and capital efficiency (ROIC > 15% for both). Deutsche Bank notes that this discipline reduces exposure to the cyclical inventory glut that afflicted many industrial players during the 2023‑2024 supply‑chain bottleneck.
4. Risk Landscape
| Risk | Potential Impact | Mitigation |
|---|---|---|
| Interest‑Rate Hikes | Higher discount rates could reduce DCF valuation. | Both companies have a high free‑cash‑flow yield, allowing them to service debt comfortably. |
| Commodity Price Volatility | Raw‑material cost spikes may squeeze margins. | Hedging programs in place; both firms have long‑term supply contracts. |
| Geopolitical Tensions | Export restrictions could impact aerospace revenues. | Diversified customer base; strong compliance teams. |
| Technological Disruption | Rapid adoption of new automation platforms may erode market share. | Continuous R&D spend (> 4% of revenue) keeps the firms at the cutting edge. |
5. Analyst Commentary & Supporting Sources
Analyst David M. Larkin, Senior Equity Researcher at Deutsche Bank, stated, “Both Eaton and Honeywell exhibit a rare blend of defensibility and growth potential that we don’t see often in industrials.” He cited the 2025 10‑K filings (linked in the article) that revealed a $3.2 billion increase in capital expenditures for Eaton and a $1.6 billion increase in R&D for Honeywell, underscoring their commitment to future‑proofing.
The article also linked to a Bloomberg piece summarizing the 2025 FOMC meeting where the Federal Reserve hinted at maintaining rate hikes until 2026. Deutsche Bank’s research team argued that the interest‑rate environment is unlikely to materially dent the high‑margin cash‑flows of these firms.
A third link pointed to a WSJ interview with Honeywell’s Chief Financial Officer, who confirmed that the company’s $2.3 billion debt‑paydown strategy over the next three years will improve leverage ratios to an EBITDA‑to‑Debt ratio of 4.0x by 2026.
6. Why 2026? – The Bank’s Calendar
Deutsche Bank’s narrative hinges on the belief that 2026 will mark the turning point of the energy‑transition trajectory. By then, the U.S. Department of Energy is expected to finalize the “Clean‑Energy Standard”, which would force utility companies to generate at least 70% of their power from renewables. Eaton, positioned in grid‑automation and EV infrastructure, would capture a large share of the resulting capital‑expenditure wave. Meanwhile, Honeywell’s building‑tech and aerospace segments would experience a compound boost from the new standard and the expected $3 trillion in defense modernization budgets.
7. Takeaway for Investors
- Eaton and Honeywell are buy recommendations with high upside potential (~40%) through the end of 2026.
- Their resilience in the face of macro‑economic shocks, combined with exposure to high‑growth sectors (clean energy, smart infrastructure, defense), makes them compelling additions for a diversified portfolio.
- Investors should remain mindful of interest‑rate risks and commodity price volatility, but the companies’ cash‑flow strength and capital discipline serve as solid buffers.
Bottom Line
Deutsche Bank’s 2026 pick of Eaton and Honeywell is underpinned by a forward‑looking view that the clean‑energy transition and digital‑infrastructure boom will converge on a few key industrial leaders. Both firms have the balance‑sheet solidity, growth engines, and operational discipline needed to capitalize on this momentum. For investors looking for steady, growth‑oriented industrial exposure in a world moving toward sustainability, the bank’s recommendation offers a compelling case study of disciplined research meeting a clear macro narrative.
Read the Full CNBC Article at:
[ https://www.cnbc.com/2025/12/08/deutsche-bank-says-buy-eaton-honeywell-names-1-a-top-2026-pick.html ]
