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Our Take on United Techologies’ Second Quarter

publication date: Jul 22, 2011
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author/source: Valuentum Analysts
United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in coming years. During the period, commercial spares at Pratt & Whitney’s large jet-engine business and at Hamilton Sundstrand advanced over 20% and 25%, respectively. Though margins at Pratt & Whitney faced some pressure due to heightened research and development costs, we expect the firm’s geared turbofan engine to exceed sales expectations in coming periods, as airlines seek the new, more fuel-efficient powerplant in their narrowbody fleets -- all eyes remain on AMR Corp (AMR) to see which engine it will choose to power its recent purchase of 260 Airbus A320s: Pratt’s geared turbofan or the Leap-X being offered by CFM (GE/Safran). United Technologies raised its full year 2011 revenue guidance to $58 billion (from $57 billion) and its earnings-per-share estimate to the range of $5.35 to $5.45 per share, up from $5.25 to $5.40 per share previously. We especially like United Technologies’ position in aerospace, but think its shares look fairly valued at today’s levels (in the high $80s). We’d look for an entry point if the firm fell below $75 per share.

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