United Technologies Corporation (NYSE:UTX) rose in morning trading after reporting another earnings beat — before falling with the rest of the tech sector throughout the day. The industrial conglomerate blew away estimates in its Q1 report. UTX stock finds itself benefiting from higher earnings as defense spending rises and growth in the general economy bolster its aircraft engine and elevator businesses.
Despite today’s dip, every still seems to be going UTX’s way. After this volatility, I believe these earnings should serve as a catalyst that will drive the stock price back to 52-week highs and beyond.
UTX Beat on Both Earnings and Revenue
UTX reported Q1 earnings of $1.77 per share. This came in 26 cents per share ahead of estimates. The company reported $1.48 per share in the same quarter last year. Revenues of $15.2 billion also came in $580 million ahead of estimates. Revenue also increased by 10.1% on a year-over-year basis.
The company also raised 2018 guidance. They now expect between $63 billion and $64.5 billion in sales, $500 million higher than before. They believe this will yield an earnings per share (EPS) value between $6.95 and $7.15, an increase of 10 cents per share from the previous UTX estimate.
Economic and Geopolitical Conditions Benefit UTX Stock
After the previous earnings report, I said that UTX stock was “ready for takeoff.” A general market correction and the easing of some geopolitical tensions took the stock down a few points.
However, I believe all of the benefits I mentioned in the previous article still apply. China still buys Otis Elevators. Also, JetBlue Airways Corporation (NASDAQ:JBLU) recently announced they would buy an additional 97 Pratt & Whitney geared turbofan jet engines. Moreover, while North Korea has cooled down, tension in the Middle East have heated up with the recent strike in Syria.
UTX Stock Compares Well to Its Peers
Despite all of the good news, the stock trades at a price-to-earnings (PE) ratio of only 21.5. Plus, with earnings growth, its estimated forward PE has fallen to about 15.6. Earnings growth should also remain the in the high single-digits for the next two years.
Its closest peer in both product offerings and valuation is Honeywell International Inc. (NYSE:HON). Both have similar fundamentals, though UTX trades at a lower PE.
Neither trade as cheaply as their peer General Electric Company (NYSE:GE). Of course, an array of financial issues makes GE cheaper for a reason. I predict GE will come back in the end. However, it will do so by becoming more like UTX, a conglomerate limited to the industrial sector.
And by buying UTX stock, investors face less financial risk since United Technologies stayed out of the finance business that nearly brought down GE.
One other benefit GE has not offered lately is a stable dividend. In contrast, UTX stock has raised its dividend every year since 1994. Assuming it increases its dividend next year, it will claim the title of “dividend aristocrat.” The dividend now stands at $2.80 per share, which amounts to a yield of around 2.3%.
The Bottom Line on UTX Stock
The latest earnings beat confirms that United Technologies stock has the wind at its back.
UTX stock seems to draw nothing but good news as earnings and revenue again beat estimates. The company also raised guidance for 2018. Political conditions, particularly with the latest budget deal favoring defense contractors, bode well for the company. Also, UTX received a huge order from JetBlue for more aircraft engines.
Moreover, despite being almost a dividend aristocrat, the stock trades at a PE below the average of the S&P 500. UTX stock will not enjoy growth levels comparable to newer tech stocks. Still, it will stand as a solid performer that will keep investors wealthy and return increasing amounts of cash to long-term investors.
For investors who want an industrial stock and need to stay rich, a stake in United Technologies stands as a safe and profitable option.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.