United Technologies Corporation (UTX) was aggressively courted by Honeywell International Inc. (HON) in Q1 of this year.
And after slumping toward the end of 2015, this news perked up investors’ ears — especially, the fact that HON offered $90 billion, or $108 a share. UTX stock was trading in the 80’s at the time.
United Technologies, however, declined the offer, stating that 108 was too low an offer. Also, the airline manufacturers were concerned that merging the two biggest makers of airplane parts would create a monopoly.
All this drama helped UTX stock gain more than 8.5% year to date. But there’s more than just drama moving this stock higher.
UTX Stock Is on the Up
Most notably, first-quarter earnings were released April 27, and the company beat earnings comfortably. It also reaffirmed guidance for the year. And its divisions are all well positioned for growth.
United Technologies owns airplane engine maker Pratt-Whitney. Its F135 engine is already the engine of choice for the military’s newest and most expensive fighter, the F-35. It also won the contract for Northrup Grumman Corporation‘s (NOC) new bomber, the B-21.
The world is an increasingly unsafe place and that means military spending is going to rise. Also, military spending is always politicians’ quick fix for a sluggish economy, and given the fact that the U.S. is in a presidential election year, boosting defense spending keeps and boosts jobs in local districts that get people re-elected.
UTX is also benefiting on the commercial air-traffic side as well. Boeing Co (BA) and Airbus Group SE (EADSY) are two of its major customers and they’re scaling up to meet orders as air travel in Asia continues to grow.
And with its massive free cash flow, United Technologies is rumored to be looking to buy its competitor Rolls-Royce Holding PLC (ADR) (RYCEY), a major engine maker in its own right.
Growing urbanization around the globe also helps UTX businesses in its security, climate control and elevator divisions. And if the dollar continues to weaken, its international sales will mean more to the bottom line.
Subsidiary Otis elevator recently announced that it is partnering with Microsoft Corporation (MSFT) and AT&T Inc. (T) to develop “smarter” elevators so that maintenance crews can spend less time diagnosing problems and less time fixing them. If the elevators can report in real-time, it makes it much easier to monitor what kinds of problems are likely to occur.
Otis has 30,000 service techs that log about 60 million hours a year working on elevators and escalators around the world. Making this side of the business more efficient could reap some significant cost savings.
Added to all this is a nearly 2.5% rock-solid dividend yield. And, UTX has committed to a $3 billion stock repurchasing program for 2016.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
