United Technologies: Aerospace to Elevators

05/18/2015 7:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured recommendation is a multi-industry holding company with well-known operations such as Otis Elevator, Pratt & Whitney, and Sikorsky Helicopters, notes value investor J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

United Technologies ( UTX) is a blue-chip company that is well worth buying for long-term investment.

Otis Elevator (20% of 2014 sales) is the world's largest manufacturer of elevators, escalators, and moving walkways. International revenues were 80% of total segment revenues in 2014.

The firm's Climate, Controls & Security unit (25% of sales) sells Carrier heating, ventilating, and air conditioning equipment. The division also makes and services security and fire safety products.

Pratt & Whitney (22% of sales) is a leading supplier of aircraft engines for large commercial aircraft, business jets, and military fighter and transport aircraft. UTC Aerospace (22% of sales) is a leading supplier of a wide array of technologically advanced aerospace products and services.

Sikorsky (11% of sales) is the world's largest manufacturer of military and commercial helicopters, including the world-famous Black Hawk helicopter.
International revenues were 30% of division revenues in 2014 and US government sales were 58%.

Sales increased 5% to $65 billion during the 12 months ended March 31, 2015 while EPS rose 10%. Strong demand for many of United Technologies' products and services was partially offset by divestitures of slower growing, less profitable segments.

Management's cost-cutting programs bolstered earnings. Sales will likely climb 6% and EPS will advance 5% in the next 12 months to 7.50.

Strong demand for the company's aerospace products and sales growth in China will boost results during the next several quarters. New CEO Greg Hayes will likely add acquisitions and spin off Sikorsky Helicopter before the end of 2015.

UTX has paid dividends consecutively since 1975 and has increased its dividend every year for 21 years.

The company's payout ratio (dividend divided by earnings) is 36%, which is well below my 50% upper limit. I expect UTX to reach my minimum sell price target of $138.14 within one year.

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