Does United Technologies Have a Bright Future?

With shares of United Technologies (NYSE:UTX) trading around $110, 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 reported second-quarter earnings per share of $1.84 and net income attributable to common shareowners of $1.7 billion, both up 8 percent over the year ago quarter. Restructuring costs were offset by other net favorable one-time items, which include the Canadian Maritime Helicopter Program (CMHP) charge in the current quarter. Earnings per share in the year ago quarter included $0.05 of favorable one-time items net of restructuring costs. Excluding these items in both quarters, earnings per share increased 12 percent year over year. Sales of $17.2 billion increased 7 percent, reflecting the benefit of organic growth (3 points) and a cumulative adjustment for the CMHP (5 points) partially offset by net divestitures (1 point). Second quarter segment operating profit decreased 15 percent over the prior year quarter, including the CMHP adjustment. Excluding restructuring costs and net one-time items, segment operating profit grew 8 percent with 90 basis points of operating margin expansion.

“Our focus on growth opportunities and execution in our core markets resulted in another solid quarter,” said Louis Chenevert, UTC Chair & Chief Executive Officer. “We saw a fourth consecutive quarter of organic sales growth, along with strong margin expansion.” Otis new equipment orders increased 3 percent over the year ago second quarter at constant currency, led by 44 percent growth in North America. Equipment orders at UTC Climate, Controls & Security increased 2 percent organically. Large commercial engine spares orders were down 6 percent at Pratt & Whitney and commercial spares orders increased 28 percent at UTC Aerospace Systems. “With earnings up 11 percent, excluding the impact of restructuring and one-time items, UTC delivered a strong first half of the year,” said Chenevert. “Our solid backlogs, organic growth trends, and focus on execution give us confidence to increase the lower end of our earnings per share range. We now expect earnings per share of $6.75 to $6.85, up from $6.65 to $6.85 previously.”

T = Technicals on the Stock Chart Are Weak

United Technologies stock has struggled to make positive progress. The stock is currently pulling back and may need time to consolidate. 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 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

16.48%

13%

10%

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

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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 Mixed 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 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?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

8.24%

-5.04%

-29.44%

0.64%

Revenue Growth (Y-O-Y)

7.40%

2.36%

1.95%

2.79%

Earnings Reaction

-1.88%*

0.75%

0.97%

-1.38%

United Technologies has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with United Technologies recent earnings announcements.

* As of this writing

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

-0.72%

-6.00%

-7.30%

-13.38%

-5.84%

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 company today reported second quarter earnings that left investors happy. The stock has struggled to make positive progress and is currently pulling back. Over the last four quarters, earnings have been mixed while revenues have been rising. Relative to its peers and sector, United Technologies has been a year-to-date performance leader. WAIT AND SEE what United Technologies does next.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from Wall St. Cheat Sheet: