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UTX or HON: Which Conglomerate to Bet on Post Q4 Earnings?

Zacks

The earnings season is well past the halfway mark with about 294 S&P 500 companies having reported results till Feb 7, 2018. Various analysis and comparisons are being done by industry peers to gauge the underlying metrics and relative performance. Let us perform a similar analysis of two leading players in the Conglomerates sector to pick the best investment option based on the fourth-quarter earnings scorecard.

Fourth-Quarter Earnings

United Technologies Corporation UTX reported healthy results driven by significant organic growth and diligent execution of operational plans. GAAP earnings from continuing operations for the quarter were $397 million or 50 cents per share compared with $1,013 million or $1.25 per share in the year-earlier quarter. Excluding restructuring and other non-recurring items, adjusted earnings for the reported quarter were $1.60 per share, which beat the Zacks Consensus Estimate of $1.56.

Net sales came in at $15,680 million compared with $14,659 million in the year-ago quarter. Quarterly sales exceeded the Zacks Consensus Estimate of $15,400 million. The top-line increase was primarily attributable to organic growth of 5% — the highest since 2014. Growth in revenues across all segments of the company helped drive total revenues. An increase in demand for the company’s products by the commercial aviation industry and an increase in spending by the U.S. defense industry have helped augment revenues for the company. The strong aftermarket business, which sells spare parts and offers related services to keep the primary products running, has also benefited results. United Technologies carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Honeywell International Inc. HON reported solid results with healthy year-over-year increase in revenues and adjusted earnings. GAAP loss for the quarter was $2,411 million or loss of $3.18 a share as against net income of $1,034 million or $1.34 per share in the year-ago quarter. The significant decline in GAAP earnings was primarily attributable to a provisional charge of $3.8 billion to reflect the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017. Excluding non-recurring items, adjusted earnings for the quarter were $1.85 per share compared with $1.74 in the year-earlier quarter. Adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by a penny.

Fourth-quarter revenues jumped 8.6% year over year to $10,843 million and exceeded the Zacks Consensus Estimate of $10,689 million. The top-line improvement was largely due to organic growth of 6%, driven by strength in Aerospace aftermarket, UOP, Advanced Materials and Intelligrated.

Guidance

United Technologies is poised to grow on the back of continued investments, strategic cost-reduction efforts and a favorable global macroeconomic environment. Backed by these positives, the company has given bullish full-year 2018 earnings guidance. Adjusted earnings are anticipated to lie within the $6.85-$7.10 per share range. Additionally, the company has given revenue guidance for 2018 between $62.5 billion and $64 billion (estimating organic growth of 4-6% year over year).

Concurrent with the earnings release, Honeywell revised full-year 2018 earnings guidance to better reflect the favorable impact from the tax reform. The company currently anticipates earnings within the range of $7.75-$8.00 per share for 2018, up from earlier expectations of $7.55−$7.80, representing year-over-year growth of 9-13%, up from 6-10% expected earlier. However, revenue guidance is affirmed at $41.8-$42.5 billion.

Price Performance

From earnings release to date, United Technologies has outperformed the industry with an average loss of 2.8% compared with 5.6% decline for the latter. Honeywell, on the other hand, has underperformed the industry with an average loss of 8.4% compared with 7.2% decline for the latter.



Estimate Revisions

Last month, United Technologies’ current-quarter estimates increased to $1.50 per share from $1.47 while that for the current year increased from $6.86 to $7.01.

Honeywell’s current-quarter estimates improved to $1.88 during the last month from $1.81, while current-year estimates increased to $7.95 per share from $7.75.

To Sum Up

Based on the current scenario, although there is not much to choose from as the stocks seem to match on most counts, United Technologies seems to have trumped Honeywell only on the basis of price performance and stands out as a better investment proposition.

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