Can United Technologies Continue Its Move to All Time Highs?

With shares of United Technologies (NYSE:UTX) trading around $103, 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:

T = Trends for a Stock’s Movement

United Technologies provides technology products and services to building systems and aerospace industries all around the world. The company operates in six segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand, and Sikorsky. Air travel and defense have been on the rise over the last several years as governments around the world consistently demand improved aerial technology. Companies and consumers also demand improved efficiency and reduced prices, further fueling demand. Aerial technology is gaining market share as a preferred method of transportation, so look for companies like United Technologies to see rising profits.

United Technologies, which supplies the U.S. military with helicopters and jet engines, has said that 5,000 jobs may be at risk due to the government shutdown. United Technologies said on Wednesday in an announcement seen by Bloomberg that an extended shutdown would lead to 2,000 jobs in Connecticut, Florida, and Alabama being cut on October 7. Two thousand more layoffs within United Technologies would occur at Pratt & Whitney and UTC Aerospace Systems if the shutdown extended into the next week.

T = Technicals on the Stock Chart Are Strong

United Technologies stock has been flying higher during recent quarters. The stock is currently pulling-back from highs for the year so it may need time to form a base before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, United Technologies is trading between its rising key averages, which signal neutral to bullish price action in the near-term.

UTX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of United Technologies options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

United Technologies Options

25.84%

96%

94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on United Technologies’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for United Technologies look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

16.33%

286.10%

53.44%

6.12%

Revenue Growth (Y-O-Y)

15.93%

15.97%

14.37%

5.67%

Earnings Reaction

2.94%

-0.79%

0.68%

-0.97%

United Technologies has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about United Technologies’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has United Technologies stock done relative to its peers, Boeing (NYSE:BA), General Electric (NYSE:GE), Triumph Group (NYSE:TGI), and sector?

United Technologies

Boeing

General Electric

Triumph Group

Sector

Year-to-Date Return

25.62%

52.59%

14.15%

8.33%

19.43%

United Technologies has been a relative performance leader, year-to-date.

Conclusion

United Technologies provides essential and highly demanded technology products and services to companies large and small across the globe. It is being reported that the company may cut a number of jobs due to the government shutdown. The stock has been flying higher in recent quarters and is now trading near all time high prices. Over the last four quarters, earnings and revenues have been rising, however, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, United Technologies has been a year-to-date performance leader. Look for United Technologies to OUTPERFORM.

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