Author Topic: UTX - United Technologies  (Read 3001 times)

Phaceliacapital

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UTX - United Technologies
« on: August 21, 2015, 02:06:53 AM »
Anyone taker at this price? Haven't done a proper due diligence but wondering if there is anyone here with a clear bull/bear view?

•   Almost oligopolistic markets

Elevators (good recurring revenue in terms of maintenance & servicing) through Otis
Climate control and security applications
Jet engines through pratt & whitney for narrowbody planes (with highly anticipated GTF engine)
Other aerospace applications (flight tracking, landing systems, wheels & brakes, …) that have seen increasing USD content on the new plane platforms.

•   Sold sikorsky for 9 bn and authorized buyback for 8 bn (current market cap 88 bn)
•   Management sees +/- 5% organic growth.
•   Trades at 15.2x FY15 earnings, and 6% FCF yield (without growth)
•   Stock buybacks on average 1.4% per year
•   Grown EBITDA per share at 7.4% and FCF per share at 5.7%
•   Dividend at 2.6%
The harder you work, the luckier you get.


rb

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Re: UTX - United Technologies
« Reply #1 on: August 21, 2015, 03:46:39 PM »
That's a good catch. I've been tracking it for a while too. Prices were kinda high for me but it's getting really interesting at these prices especially after today.

While I've looked at it, I haven't yet done a deep dive and full model, but I generally like all the industries they are in. A couple of observations though:

1. Pratt & Whitney is not as good a business as GE or Rolls Royce. However that won't prevent them for being quite profitable in the future.
2. Otis has benefitted hugely from the building boom in China, so the future won't be as bright as the past. That being said I love the industry. There are not many industries better than elevators.

I will definitely have to go deeper into this soon. With this market action things are getting really busy  ;D

no_free_lunch

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Re: UTX - United Technologies
« Reply #2 on: August 27, 2015, 03:51:36 PM »
Room for improvement.  Not sold on this one yet but certainly interesting at these levels.

Quote
Since taking on the CEO job in November after the abrupt retirement of his predecessor, Mr. Hayes has been tasked with boosting the share price and improving operations of the company, which also makes Pratt & Whitney jet engines. He has shaken up management, brought back former executives and recently agreed to sell United Technologies’ smallest unit, the Sikorsky helicopter business.
..
Two years ago, United Technologies merged Otis and Carrier and several other brands under one structure, but the benefits of the combined unit have come up short. It enabled cost-cutting, but cross-selling using Otis’s sales contacts to interest builders in a Carrier cooling system, for instance, has been more modest than forecast, and the performance of the individual brands has gotten lost.

Otis, in particular, has suffered in the new structure. Ordinarily a cash-generating engine with an installed base of 1.9 million elevators that it maintains around the world, the elevator unit in July had to pare back its profit forecast for the year by $300 million to $350 million, weighed down by slowing growth in China and a stagnant European elevator market. Market share in China fell to 15% currently from an estimated 25% several years ago.

The drop in Otis’s market share in China “is shocking,” Nicholas Heymann, of William Blair & Co., wrote in a note to investors, calling for a “change in culture” rather than further cost-cutting. “Often this type of extended gradual erosion of a company’s business franchises takes more than cost reduction to fix,” Mr. Heymann wrote.

United Technologies’ Mr. Hayes said Otis has focused too heavily on keeping profit margins high at the expense of boosting its share of the elevator market. The company must be more competitive in claiming new market share to win the lucrative contracts to service installed elevators in future years. To do so, it may have to compromise on price for new sales to lock up long-term service contracts, Mr. Hayes said.
..
“People say we need to take a timeout from M&A because of last quarter,” Mr. Hayes said. “I disagree. We’re not going to turn off the spigot.”

http://www.wsj.com/articles/united-technologies-ceo-plans-to-shake-up-building-unit-1438866755


rb

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Re: UTX - United Technologies
« Reply #3 on: August 27, 2015, 05:31:35 PM »
I was just saying like you that it's getting interesting at these levels. I'm still not comfortable enough to pull the trigger. I'd like to see it cheaper.

I don't think that the management team are first rate capital allocators. When they talk about doing acquisitions to replace the lost revenue from Sikorsky but don't mention anything about value I get really nervous.

The company is into some very good industries though.

no_free_lunch

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Re: UTX - United Technologies
« Reply #4 on: August 27, 2015, 07:15:06 PM »
Yeah, I tend to agree with you.   P/FCF looks to be 16x based on last years numbers, it's cheap but not crazy cheap.   I like the ROE, someone on seeking alpha has them around 20% for the past 5 years but it's not enough given how weak sales are, global economy risks, management.   I think I will need to see a management change or a lower price.  Maybe if you hedged it against china?
« Last Edit: August 27, 2015, 07:18:15 PM by no_free_lunch »

walkie518

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Re: UTX - United Technologies
« Reply #5 on: October 31, 2018, 05:33:26 PM »
UTX has seen some traction in sales as well as improvement in quality of earnings

given these factors, for a substantive yet growing business, it seems cheap relative to the market (though perhaps not on an absolute basis?) 

thoughts?