United Technologies Corp (NYSE:UTX) reported earnings recently that left investors wondering whether the glass was half-full or half-empty. Revenue of $15 billion beat the average Thompson/Reuters analyst estimate of $14.5 billion, but earnings per share fell short of the estimated $1.42.
So what’s the story with UTX in the midst of a global slowdown and growing concern about defense spending? Considering the degree of uncertainty, is UTX right now a BUY, a WAIT and SEE, or a STAY AWAY?
Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
While the “fiscal cliff” may be avoided, it is hard to imagine a scenario in today’s political climate that does not call for cuts in defense spending. The issue is how much and where. Once the size and scope of the cuts are known, the certainty could act as a catalyst for United Technologies stock, either up or down.
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E = Equity to Debt Ratio is Close to Zero
United Technologies’ debt position is cause for concern, but when compared to the company’s competitors, the picture looks a bit less grim.Right now UTX has a debt to equity ratio of 1.15 with $28.7 billion in debt and only $6.2 billion total cash on hand. In sharp contrast, competitor Lockheed Martin (NYSE:LMT) has a debt to equity ratio of 2.67 and General Electric (NYSE:GE) stands at 3.52. The best performance among the major defense contractors is Northrup Grumman (NYSE:NOC) at 0.36.