Should You Consider United Technologies at These Prices?

With shares of United Technologies (NYSE:UTX) trading around $93, 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.

T = Technicals on the Stock Chart are Strong

United Technologies stock has witnessed a bullish run extending back to last year. The stock is now trading and consolidating at all-time high prices so it may get going in the new few months. 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 slightly above its rising key averages which signal neutral to bullish price action in the near-term.

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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

20.07%

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

July Options

Flat

Average

August 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

286.1%

53.44%

6.12%

1.38%

Revenue Growth (Y-O-Y)

15.97%

14.37%

5.67%

-4.58%

Earnings Reaction

-0.79%

0.68%

-0.97%

0.44%

United Technologies has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have generally priced-in United Technologies’s recent earnings announcements.

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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

14.11%

-0.18%

22.83%

13.06%

7.31%

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. The stock has been on a bullish run over the last year and is now consolidating at all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise, which have just about been priced-in by investors in the company. 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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