United Technologies Corporation (NYSE:UTX) beat Wall Street estimates on both revenue and earnings this quarter.
The Farmington, Connecticut-based firm suffered from years of uneven growth as competition from overseas and aging technology held the stock back. Now, as company earnings form a sustained upward trend, UTX stock is ramping up and finally has a chance of exceeding S&P 500 averages.
United Technologies Beat Earnings and Revenue Estimates
UTX revenues for 2017’s fourth-quarter came in at $15.7 billion. This amounts to a 7% year-over-year increase and comes in $280 million higher than expected. Earnings-per-share (EPS) came in at $1.60 per share, 4 cents per share ahead of estimates.
Investors reacted to this news with a modest pre-market selloff of UTX stock.
Still, the numbers show rising trends.
Analysts were already forecasting four consecutive years of profit growth from 2017-2020. They expected this growth to range between 4-8%. With the reported earnings beat, analysts will likely revise their estimates upward.
And this earnings report shows improved performance for United Technologies. For the last five years, both revenue and EPS growth averaged well under 1% per year. Profit growth has remained uneven for years amid overseas competition and pricing pressure. These challenges previously left UTX unable to achieve sustained growth, but now the company seems to be finding its footing again.
Improved Products and Performance Across Divisions
Four divisions make up United Technologies.
UTC Aerospace Systems builds aircraft and aircraft systems for both military and commercial purposes. Pratt & Whitney, Otis Elevators and UTC Climate, Controls, and Security (which includes Carrier) also exist under the UTC umbrella.
These divisions have worked to improve their offerings and increase profits. United Technologies was already one of the largest military contractors in the country. But buyout of Rockwell Collins, Inc. (NYSE:COL) — assuming the government approves the merger — will increase the company’s stake in producing military hardware even further.
Also, the Pratt & Whitney division has improved its Geared Turbofan. This aircraft engine, long a drag on UTC, will now drive earnings for the company. Its redesign allows different parts of the engine to operate at different speeds, leading to better fuel efficiency. Likewise, Otis has benefited from a more robust Chinese economy leading to increased elevator orders.
UTX Stock Selling At A Discount
Like many Dow components, UTX remains a stable, but slow growth business.
At 21, the price-to-earnings (PE) ratio lags modestly behind the Dow 30 average. It also places the company behind key peers such as Lockheed Martin Corporation (NYSE:LMT) and Honeywell International Inc. (NYSE:HON). In fact, this PE stands only slightly higher than that of UTC’s financially-troubled competitor General Electric Company (NYSE:GE).
Despite flat growth in recent years, UTX stock price has more than tripled from its 2009 low.
Much of the increase occurred in the last two years as United Technologies stock followed the market higher. Still, even with higher earnings, its growth lags that of the Dow and the S&P. But I believe recent profit growth and better products will boost growth enough to exceed the averages.
A decades-long history of dividend payments offers further incentive to invest. United Technologies has raised its dividend each year for more than 20 years. The current dividend yield stands at 2%, or $2.80 per share. With profits only going higher, the dividend increases will likely continue for years to come.
The Bottom Line On UTX Stock
Improving prospects — along with higher earnings — will likely drive UTX stock higher.
The earnings beat and a strong finish to 2017 show the company is positioned for consistent earnings growth. Further, the acquisition of Rockwell Collins will give it a larger role in the profitable military contracting industry. Finally, a better economy and improved products should bolster both Pratt & Whitney and Otis.
Investors who buy UTX stock will likely boost their stock portfolios with this United Technologies’ united technologies.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.