Resideo Technologies, Inc. REZI
Resideo is an over-levered, serially-disappointing Honeywell spin whose split-up is a 'trust me' distraction from $2bn of troubled M&A and -37% cash-flow decline; 25-50% downside.
Thesis
Spruce Point is short Resideo Technologies (NYSE: REZI), a 2018 Honeywell spin-off that has cycled through four CFOs and four CAOs, missed every 2024 target set at its 2021 Investor Day, and grown adjusted debt from $2.0bn to $4.3bn (5.5x leverage). A forensic review finds operating cash flow down -37% since spin-off, $220m of restructuring charges treated as recurring Non-GAAP add-backs, and $142m of cumulative under-reported cash taxes inflating GAAP earnings. Two landmark acquisitions, First Alert ($593m) and Snap One ($1.4bn), look value-destructive and accounting-strained; Snap's customer-life assumption was raised from 10 to 12 years to flatter income. With ERP remediation potentially costing another $100-250m and the proposed split-up offering no real catalyst, the sum-of-parts implies $17-27 per share, or 25-50% downside from $35.27.
SCQA
Resideo Technologies is a 2018 Honeywell spin-off operating two segments — ADI distribution and Products & Solutions (smart-home and security) — recently bulked up via $2bn of acquisitions and now proposing to split into two public companies in 2026.
The company has missed every 2021 Investor Day target, cycled through four CFOs and four CAOs, lets $220m of 'one-time' restructuring inflate Non-GAAP EPS, and underreports cash taxes by $142m while operating cash flow has collapsed -37% since spin-off.
Investors should demand an independent investigation into REZI's accounting and reject the split-up narrative as a 'trust me' distraction; sell or short ahead of multiple compression as the sum-of-parts re-rates toward peer-discount levels.
Spruce Point's sum-of-parts values REZI at $17.05-$26.72 per share against the $35.27 close, implying 25-50% downside as the 1.3x EV/revenue multiple compresses toward the 0.66x long-term median.
The three reasons
- 1
Operating cash flow has collapsed -37% since the 2018 spin-off despite $2bn+ of M&A
- 2
$220m of recurring restructuring 'add-backs' and $142m of tax under-reporting inflate Non-GAAP EPS
- 3
1.3x EV/revenue is double the 0.66x long-term median for a low-growth hardware distributor
Primary demands
- Independent investigation into REZI's financial reporting and accounting accuracy
- Reject the proposed split-up as a value-creation lever for an underperforming, over-levered story
- Reassess management credibility given four CFOs and four CAOs in seven years and missed 2024 targets
KPIs cited
Pattern membership
Precedents cited
- Sunbeam / Al 'Chainsaw' Dunlap First Alert accounting fraud (1998)
- Jarden/Newell SEC settlement on First Alert organic growth ($12.5m, 2023)
- Generac (GNRC) — prior Spruce Point short, -60% drawdown
- Limbach (LMB) — prior Spruce Point short, -48% drawdown
- Floor & Decor (FND) — prior Spruce Point short, -44% drawdown
- NCR — failed strategic alternatives process
- iRobot (IRBT) — Chapter 11 bankruptcy after Spruce Point short
Composition what's on the 93 slides
Slide gallery ·
Notes
Cover slide uses a memorable 'Smart Alert / 120° / Shares Over Heated, Sell' thermostat-with-cockroaches visual metaphor — unusually creative for an institutional short report. Pages 4-5 establish credibility with a track record table of prior Spruce Point shorts (Generac, Limbach, FND, NCR, iRobot) including drawdowns and outcomes. Deck follows a clean 6-section structure (Exec Summary, Legacy Issues, M&A, Growth, Accounting, SOTP). Tagline 'Red Alert, Where There's Smoke, There's Fire'. No named individual author — institutional Spruce Point byline only. Stake not disclosed (per standard SP practice) but disclaimer confirms short position.