United Technologies Hits 52-Week High On Solid Prospects

Shares of diversified conglomerate United Technologies Corporation (NYSE:UTX) hit a new 52-week high of $112.81 on Feb 27, before closing the trading session a notch lower at $112.20, for a healthy year-over-year return of 16.8%.

United Technologies’ share price has been on a steady uptrend since Nov 2016. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock appears to have enough room for further upside. The stock currently has a long-term earnings growth expectation of 8.7%.

Growth Drivers

United Technologies’ shares recorded an average return of 3.7% in the last three months, outperforming the Zacks categorized Diversified Operations industry (3.2% for the same period). The company serves various end-markets such as aerospace, defense and commercial construction, which move according to their own cycles. This business mix and diversification allows it 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. United Technologies is also seeking potential acquisitions to achieve aggressive revenue targets and augment its market position.

Incorporating its improved expectations for organic sales growth in the near future, United Technologies affirmed its guidance for 2017. The company expects adjusted earnings in the range of $6.30 to $6.60 per share on revenues of $57.5 billion to $59 billion. The company reaffirmed its acquisition expectations of $1–$2 billion and free cash flow guidance in the range of 90–100% of net income. It also plans to repurchase shares worth $3.5 billion in 2017. Despite a challenging macroeconomic environment and continued investments in the aerospace segment, the company expects to generate significant cash from operations to reward the shareholders with a risk-adjusted return.

The company continues to focus on organic growth to boost its top line. Recently its operating unit Carrier collaborated with the largest provider of pay TV in the world, AT&T (NYSE:T). This collaboration will help enhance Carriers’ services for its customers. It will be well placed to provide facility managers the capability to make more informed maintenance decisions. On using AT&T’s IoT (Internet of Things) technology, SMART Service will be able to curb chiller energy and maintenance expenses.

One of the most important profitability metrics is Return on Equity (ROE). ROE reveals the amount of profit a company earned compared to the total amount of shareholders’ equity found on the balance sheet. United Technologies currently has a ROE of 18.66%, whereas the industry’s ROE is 7.08%. The favorable ROE acts as a major growth driver for the company.

Stocks to Consider

Some better-ranked stocks in the industry include Barloworld Limited (OTC:BRRAY) , Hitachi, Ltd. (OTC:HTHIY) and Swire Pacific Limited (OTC:SWRAY) .All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Barloworld has a long-term earnings growth expectation of 18.70% and is currently trading at a forward P/E of 11.04x.

Hitachi has a long-term earnings growth expectation of 13% and is currently trading at a forward P/E of 13.72x.

Swire Pacific is currently trading at a forward P/E of 15. 85x.The company is one of Hong Kong's leading listed companies, with diversified interests in five operating divisions: Property, Aviation, Beverages, Marine Services and Trading & Industrial.

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