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Why Garrett Motion Stock Soared 30% Today

By Howard Smith – Updated Sep 3, 2020 at 2:39PM

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The maker of turbocharging systems is bucking the market trend in a big way.

What happened

Shares of Garrett Motion (GTX 5.01%) were up more than 30% as of 2:10 p.m. EDT today, while the S&P 500 index was dropping by almost 3.5%. 

The stock has been volatile as it battles with former parent Honeywell (HON -0.98%) over potential liability payments.

judge's gavel on 100 dollar bills representing lawsuit

Image source: Getty Images.

So what

Sometimes the best explanation for big stock moves is that there is no good explanation. When Garrett Motion was spun off from former parent Honeywell in 2018, its market capitalization was about $1.4 billion. Currently, it is about $260 million, even after the big move today. Small-cap stocks like this can experience significant daily moves with no real news. 

Garrett has been fighting Honeywell over asbestos liability payments that Honeywell included in the separation agreement. Garrett sued its former parent in 2019 alleging that the payments were unduly burdensome. 

The share price collapsed 50% in late August after Garrett Motion said it was exploring alternatives for balance sheet restructuring due to its high leverage and potential liability payments to Honeywell. Today's rebound looks to be part of the uncertainty stemming from that development.

Now what

The company said that though it hasn't determined whether to pursue alternatives to revamp its balance sheet, such action "may materially reduce the value or trading price of our common stock."

Shareholders continued to sell the stock for several more days after that release, and today's jump still leaves it 48% below where it traded prior to the warning of a possible restructuring. 

A resolution of the legal and balance-sheet issues will certainly help shares of Garrett Motion. In the meantime, there will likely be much volatility, even on no new news. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Garrett Motion Inc. Stock Quote
Garrett Motion Inc.
$7.43 (5.01%) $0.35
Honeywell International Stock Quote
Honeywell International
$217.39 (-0.98%) $-2.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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