|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
United Set to Fly High
Posted by: Black Iguana (IP Logged)
Date: November 13, 2013 10:41AM
United Technologies (UTX) hasn’t been doing too badly when it comes to performance in the stock market. However, the aerospace giant’s Pratt and Whitney segment revenue has declined 5% year by year to $3.38 billion in the third quarter of the fiscal year 2013. It is expected to overcome this decline by supplying high-end engines to Bombardier’s Cseries airplanes and also to Lockheed Martin (LMT)'s fighter planes. The engines supplied by the Pratt and Whitney segment to the Bombardier Cseries airplanes use an advanced gear system, which improves fuel efficiency by around 16% thereby reducing the operation cost by 20%. These small benefits might end up making the Pratt and Whitney segment of UTX the long-term engine suppliers for Cseries airplanes.
Experts are also expecting Pratt and Whitney’s supplies to Lockheed Martin’s F-35 planes to grow in the future. With Lockheed having potential customers in Britain, Australia, Japan and Norway, the Pratt and Whitney segment can expect a load of orders for the future.
This is not the only good news for UTX. Lockheed also has orders from the Pentagon and under its five-year plan, the Pentagon has ordered around 42 F-35 planes. All this is expected to increase this segment of UTX’s revenues a great deal.
Lockheed Martin’s F-35 is being touted as the game changer. It’s high performance and highly increasing demand is boosting the company’s aerospace segment. This segment’s net sales had declined in the third quarter of this fiscal year. It went down by about 1.78% to presently $3.63 billion. This, however, is likely to change as I had earlier mentioned about Lockheed’s F-35’s increasing demand. This increase will subsequently boost Pratt and Whitney’s sales revenue because the F-35 is powered by engines made by them.
United Technologies’ aerospace segment also supplies multiple systems to Bombardier's Cseries. These include its electric power generation and distribution system as well as the engine control system and various other components. Thus, with an increase in the demand for Cseries airplanes, both the aerospace segment of UTX as well as the Pratt and Whitney segment is expected to benefit. Having said this it is important to mention about the customers that Bombardier’s Cseries has all over the world. Very recently, the company announced that it had received orders for over 30 airplanes of the Cseries from a Chinese firm. This apart an Indonesian firm named PTLION Mentari airlines is also being rumored to place an order sometime next year. Currently the Bombardiers have 177 orders which are confirmed and are expected to reach 300 units by next year.
United Technologies’ aerospace systems segment also supplies components to Boeing for its 787 commercial airplane series. This apart, Xiamen airlines has also selected UTX as its supplier. For the record, the improvised brake design for the 787 series of Boeing airplanes has increased its brake life by 35% thereby reducing the operation cost for the company.
Growth with Increasing Demands
In the third fiscal quarter of 2013, the sales for the aerospace systems segment of UTX grew by 24% to $3.31 billion. This growth pattern is expected to continue next year. Early last month, United Technologies bagged three coveted contracts for a whopping $205 million from the U.S. Department of Defense. Out of the $205 million, a contract worth $197.66 million is provided to Sikorsky which has been given the charge of providing logistic support including labor, services, facilities and equipment to U.S. Navy’s T-34, T-44 and T-6 aircrafts. The reports show that the Sikorsky segment contributed about 9.97% in the company’s sales revenues.
What’s in Store for Investors?
On Oct. 9 this year UTX hiked its yearly dividend by 10% to $0.59 per share. On the going prices of $108 per share, the dividend yield is 2.17% below the past five-year average of 2.39%. With this current trend of growth in the company’s sales revenue, it won’t be wrong to expect this dividend yield to go up. Most of the primary buyers of aerospace segment of United Technologies have grown in terms of revenue and have hiked their dividends. This growth will positively affect the sales revenue of United Technologies. I would take this opportunity to tell the investors that this is the perfect time to put their money on UTX.
To Sum Up
We can now easily conclude that in spite of the lows that UTX stock has seen of late, things seem bright for the future. The increasing demand for its products is one cause. The P/E ratio has also gone up from 15.88 to 19.2 with the P/B ratio being somewhere around 24.1 which suggests that the currently undervalued stock is sure to sky rocket in the coming days. With an increased dividend and an assured growth in prices UTX is definitely the stock to invest in.
Stocks Discussed: UTX, LMT,