United Technologies: Conglomerate Relies on Cyclical Growth Factors
Andrew Leckey

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About United Technologies Corp.

Ticker: UTX

Exchange: NYSE

What does the company do? Manufactures engines, air-conditioning systems, helicopters and building elevators.

2010 Financial report:

Net sales: $54.3 billion

Net income: $4.4 billion

Q. Please give your opinion of United Technologies Corp., whose shares have been recommended.

A. Investing in any conglomerate requires that an investor do some homework to fully understand it. There are many facets to diversified companies, with business units often being added or sold off.

This conglomerate is playing it cool in 2011: Its Carrier air conditioners are experiencing strong worldwide sales, especially in China. Its Otis Elevators unit should similarly benefit from that emerging nation's building activity.

Its Pratt & Whitney jet engine business is a solid performer featuring new models with improved fuel economy and reduced noise, while its Sikorsky unit is the world's largest manufacturer of helicopters.

United Technologies has had some high visibility this year:

-- Two of its Black Hawk "stealth" helicopters, modified to reduce noise and evade radar, carried U.S. Navy Seals on their mission to Osama Bin Laden's compound. The commandos blew up one of the helicopters after it was damaged in a hard landing.

-- This builder of rocket engines testified before Congress that NASA's continued uncertainty about the future of the space program is making it impossible for contractors to develop viable strategies for the future.

United Technologies (UTX) shares are up 12 percent this year following gains of 13 percent in both 2010 and 2009. Its first-quarter net rose 17 percent to $1.01 billion.

In its April announcement of a quarterly dividend increase to 48 cents a share from 42.5 cents, it expressed confidence that its technologies and emerging-market positions "will provide sustainable sales and earnings growth over the long term."

Wall Street analysts have been raising price targets for United Technologies over the past month and their consensus recommendation is "buy," according to Thomson Reuters, consisting of seven "strong buys," nine "buys" and five "holds."

United Technologies has an order backlog, and the current strength of the euro is a positive for overseas sales. The company purchased General Electric's security unit last year and more acquisitions may be ahead.

Some concerns: Its significant international business must always cope with currency volatility. It is also dependent on government funding for military contracts, and the building and aerospace businesses are cyclical.

Earnings are expected to increase 14 percent in 2011 compared to 27 percent forecast for the diversified industrials sector, according to Thomson Reuters. The five-year annualized growth rate is forecast as 10 percent versus 16 percent expected industry-wide.

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