Aerospace and Analysts Favor United Technologies

With shares of United Technologies Corp. (NYSE:UTX) trading at around $85.43, is UTX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

UTXAerospace is one of the hottest spaces right now. Demand is so high that it’s difficult for companies like United Technologies to keep up. This is an excellent sign, especially considering United Technologies is arguably the most reliable maker of aircraft parts. Another positive is a deal with Embraer. This deal will make United Technologies the only provider for Embraer’s future line of jets.

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Now let’s take a quick look at potential positives. Jim Cramer rated United Technologies a Buy. This isn’t the first time this has happened. He rated United Technologies a Buy in September of 2012, and it turned out to be a good call. He seems even more bullish now. Another potential positive is that Doug Ramsey of The Leuthold Group is calling for a return to 2007 high for the S&P. If he’s correct, then United Technologies will definitely benefit. However, opinions aren’t as important as numbers. Therefore, let’s take a look at some important numbers.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio is normal. It’s also stronger than the debt-to-equity ratios for The Boeing Company (NYSE:BA) and General Electric Company (NYSE:GE). On the other hand, the balance sheet is not impressive.

Debt-To-Equity

Cash

Long-Term Debt

UTX

1.10

$6.42 Billion

$28.70 Billion

BA

1.46

$11.17 Billion

$11.19 Billion

GE

2.78

$134.18 Billion

$355.11 Billion

 

T = Technicals on the Stock Chart Are Strong

United Technologies has performed well over the past three years. The company is also yielding 2.60 percent.

1 Month

Year-To-Date

1 Year

3 Year

UTX

6.83%

4.18%

15.25%

26.25%

BA

2.07%

0.91%

16.31%

39.61%

GE

-1.14%

0.25%

3.72%

31.98%

 

At $85.43, United Technologies is trading above all its averages.

50-Day SMA

80.20

100-Day SMA

79.58

200-Day SMA

78.08

 

E = Earnings and Revenue Have Been Impressive  

Earnings and revenue have been growing steadily since 2009. United Technologies has also reaffirmed its 2013 earnings and revenue outlook, which is EPS of $5.85 to $6.15, and revenue of $64 billion to $65 billion.

2007

2008

2009

2010

2011

Revenue ($)in billions

55.72

59.12

52.42

54.33

58.19

Diluted EPS ($)

4.27

4.90

4.12

4.74

5.49

 

When we look at last quarter on a YoY basis, we see an increase in earnings and revenue.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

14.24

16.81

12.42

13.81

15.04

Diluted EPS ($)

1.47

1.46

0.36

1.47

1.56

 

T = Trends Support the Industry

As stated earlier, trends heavily support the industry. One threat is a cut in defense spending. The first hurdle, the fiscal cliff, has been jumped. Now we have to worry about the debt ceiling. Another concern is continued weakness in Europe, but that’s the case for almost any company with international exposure.

Conclusion

There are some potential challenges in the future, but the rewards greatly outweigh the risks. This is a company that has performed well for decades. United Technologies never stops growing. It will continue to grow organically as well as through acquisitions and mergers. Other positives include a 2.60 percent yield, steady earnings and revenue growth, reaffirmed guidance, good cash flow, an ROE of 22.68 percent, a Forward P/E of 14.02, and exposure to a hot industry.

United Technologies is an OUTPERFORM.

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