Tuesday, 21 July 2015

United Technologies: another bellweather disappoints

I have called United Technologies a bellweather stock before (link here) but today's earnings update really is interesting...because it is an earnings reducing profits warning:

So why is this?  Well throw in a slight deterioration in commercial aerospace after market sales and similar trends across all their military interests...

...mixed up with a general slowdown ex America in the Otis elevators business...
 ...you net net have your warning.  I noted back in January that a 'first re-look sub US$110 but nearer US$100 even more interesting' but let's quickly re-run the reduced numbers.  After a few quick calculations the above guidance suggests around US$9.1bn in operating profit and US$5.6bn in free cash flow. This throws out a highish x11 EV/ebit valuation and a fairly 6% free cash flow yield...which is interesting when compared to the slightly cheaper Honeywell and overtly simplifying General Electric (link here).

Now as I also noted in yesterday's Wrap which included thoughts on the sale by United Technologies of Sikorsky to Lockheed Martin, United Technologies is trying to simplify a little too.

Pulling it all together sub US$100 is probably not a terrible level to make a first purchase of United Technologies BUT when you have a simplifying General Electric and other interesting US industrial conglomerate types (like Emerson Electric which I wrote up here and the aforementioned Honeywell) there is no shortage of alternatives.

But that is just the United Technologies share.  Have a think what its says when a leading elevators business is struggling against hopes (military and aerospace have other insights - but necessarily cycles are longer here).  That is not the greatest world. 

Very akin to what my European 'bellweather' SKF said last week... (link here). 

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