Honeywell Aerospace (HONA) is hindered by execution challenges but its fundamental business is "attractive" and has upside if it can resolve its issues in the supply chain, Morgan Stanley said in a Friday note.

In its first standalone financial results in Q2, the company missed analysts' consensus and cut its full-year 2026 outlook, the firm noted. Honeywell Aerospace faced challenges in revenue and profit as its expected output ramp did not come about due to sustained mechanical supply constraints, according to the note.

The company stated it is taking several steps to reduce operational bottlenecks, including boosting the number of parts, as well as supporting and working more closely with suppliers, the note said.

The firm noted that organic revenue growth of closest peers RTX (RTX) and GE Aerospace (GE) for the quarter is in the double digits, compared with around 5% for Honeywell Aerospace. Morgan Stanley analysts forecast 7% growth for the company in the three-year period ending 2028, compared with 11% for its broader peer set. This provides proof that the demand environment remains strong, the analysts said.

Morgan Stanley maintained the company's stock rating at equal-weight and adjusted the price target to $205 from $235.

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