United Technologies (UTX) has outperformed the S&P 500 over the long haul. It has achieved this by providing investors with the combination of dividend payments and earnings growth that outpaced the market.
This $76 billion large-cap company is divided into a number of diverse segments:
Passenger & freight elevators, escalators, moving walkways
Fuel cells for transportation, space, and defense
UTC Climate Controls, & Security
HVAC, refrigeration systems, electronic security products, fire safety products
Pratt & Whitney
Aircraft engines, industrial gas turbines, geothermal systems, space propulsion systems
Military and commercial helicopters
United Technologies is fairly valued as the stock is trading at 12.38 times future earnings. Its PEG ratio is 1.37 and the stock is priced at 3.46 times book value per share. If the PEG ratio was under one and the price to book ratio fell under 3, I would consider United Technologies as undervalued.
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United Technologies has respectable profitability with a profit margin of 8.56% and an operating margin of 14.27%. The company rakes in $6.59 billion in operating cash flow and $5.41 billion in free cash flow. Total cash stands at $5.96 billion and total debt is currently $10.26 billion. United Technologies has 1.38 times more current assets than current liabilities.
Although the company has no upward earnings revisions for 2012, it does have one upward revision for 2013. United Technologies is expected to grow earnings annually at 10.9% for the next five years. It pays a dividend of 2.3%, so investors should expect a total annual yield of 13.2% (dividends + stock appreciation) over the next five years.
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The company sees strength in commercial aerospace and growth in emerging markets. It expects sales to be between $59 billion - $60 billion and earnings per share to range from $5.80 - $6.00 for 2012.
United Technologies is looking to finalize its Goodrich acquisition in 2012. This gives the company additional products to drive sales such as: Aircraft landing gear, aircraft wheels and brakes, cabin interior furnishings, cabin management systems, actuation controls, and more.
Overall, United Technologies looks like a solid business that grows steadily and beats the market over the long-term. Since the company is only expected to grow earnings at 1.8% in 2012, I think that investors can be patient and start a new position in United Technologies on a pullback or market correction. Earnings growth is expected to ramp to 20.8% for 2013.