On Nov 28, Zacks Investment Research updated the research report on diversified conglomerate, United Technologies Corporation UTX. Post third-quarter 2016 earnings, the stock recorded an average return of 7.3% – an inline performance compared with the Zacks categorized Diversified Operations industry and looks poised for an uptrend with rising earnings estimates for the current year.
Furthermore, a modest long-term growth expectation of 5.1% shows inherent strength in operating fundamentals. Based on the solid third-quarter results, United Technologies has also raised the lower end of its 2016 earnings guidance. For 2016, the company expects adjusted earnings to be in the range of $6.55 to $6.60 per share (prior guidance: $6.45 to $6.60) on revenue expectations of $57 billion to $58 billion.
United Technologies serves various end markets such as aerospace, defense and commercial construction, which move according to their own cycles. This business mix and diversification allows the company to remain profitable even during tough economic times, delivering consistent earnings and dividend growth. The company has an experienced management team, and is likely to capitalize on the continued global economic recovery and deliver sustainable earnings growth in the future. In order to fuel its growth momentum, the company further remains focused on four key priorities: flawless execution, innovation for growth, structural cost reduction and disciplined capital allocation.
The company’s aftermarket services business is also relatively stable and helps to offset the negative impact of any downturn in the new product market. United Technologies has also revamped its aerospace unit. It overhauled its organizational structure in the aerospace business, along with making some key changes in the leadership positions within it. United Technologies anticipates that the streamlined organizational set up would enable it to better serve its customers. In addition, the company expects that the strategic moves will further ensure a successful entry and production ramp up of its Geared Turbofan engines to thwart intense competition from peers like General Electric Company GE, Honeywell International Inc. HON and Rolls Royce.
However, United Technologies has a considerable presence in the U.K, registering approximately $2 billion in revenues from the region in 2015 out of the overall tally of $56.1 billion. Consequently, the company is susceptible to high operating risks following the Brexit referendum. Fluctuations in foreign currency exchange rates also affect the company’s net investment in foreign subsidiaries and may cause instability in cash flows related to foreign denominated transactions. These undermine its long-term growth potential to some extent.
United Technologies currently has a Zacks Rank #3 (Hold). A better-ranked stock in the industry is Danaher Corp. DHR, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Danaher is currently trading at a forward P/E of 22.2x and has beaten estimates thrice in the trailing four quarters, the average positive earnings surprise being 6.1%.
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