With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?
Stephen Simpson, CFA
Stephen Simpson, CFA
Tue, May 3, 12:29 PM
- United Technologies (UTX -1.9%) is downgraded to Sector Perform from Outperform with a $108 price target at RBC Capital because the firm says Honeywell's actions indicate the company no longer is interested in buying UTX.
- The firm says that when it upgraded UTX a few months ago, it was with the premise that HON would remain a stalking horse given its thwarted bid, but subsequent actions including HON's selection of an heir apparent to CEO Dave Cote and a new $5B buyback program suggest that HON has moved on.
- Meanwhile, the underlying business outlook for UTX remains pretty much the same, RBC says, remaining concerned not just about Geared Turbofan execution but also the outlook for China.
- Now read United Tech downgraded to Neutral from Buy at Goldman
Tue, Mar. 1, 9:13 AM| Tue, Mar. 1, 9:13 AM | 12 Comments
Mon, Feb. 22, 5:35 PM
- After reports of megamerger discussions goosed the stocks of Honeywell (HON -1.9%) and United Technologies (UTX +4.8%) earlier today, Honeywell dropped to close in the red on further reports that UTX didn't think the deal would get an antitrust OK.
- Each conglomerate is worth more than $70B and makes a wide variety of goods, but they have a heavy overlap in aerospace.
- Regulators would likely be as concerned with the deal as supply customers Boeing and Airbus. "There is no chance the government will give them a pass,” said University of Michigan professor Erik Gordon.
- Honeywell had floated a merger with United Tech in 2000 under different leadership before GE jumped in with a $40B deal to buy Honeywell -- which was blocked by European regulators in 2001.
- Updated 7:40 p.m.: UTX confirms it never explored options due to "significant regulatory obstacles, customer concerns and valuation issues"; In particular, UTX said "combining two of the world's largest players in the aerospace and commercial building segments would face insurmountable regulatory obstacles and strong customer opposition, and could either be blocked outright or conditioned on significant divestitures after a lengthy and disruptive review period that would destroy shareholder value."
- Previously: CNBC: Honeywell, United Technologies discussed megamerger (Feb. 22 2016)
Mon, Feb. 22, 1:22 PM
- Honeywell (HON +2%) and United Technologies (NYSE:UTX) have had talks about a merger to create an aerospace megacorp that would represent $94B in sales, CNBC is reporting.
- UTX has jumped 4.4% on the news.
- Talks are early stage, but reportedly occurred within the past two weeks and involved Honeywell offering a premium in a mostly-stock deal.
- Any combination would face strict antitrust scrutiny, and likely heavy opposition from plane customers like Boeing and Airbus.
Wed, Jan. 6, 2:54 PM
- United Technologies (UTX -3.2%) is downgraded to Neutral from Buy with a $100 price target by Sterne Agee CRT, which sees shares stuck in another tight trading range based on 14x-16x 2016-17 estimates over the next nine-plus months given limited operating income growth offset by aggressive buybacks.
- While buybacks support the downside in UTX stock, the upside is limited as only one of the company's four segments has operating income growth in 2016, the firm says.
- Sterne sees better risk/reward for investors over the next 12 months through Honeywell (HON -1.7%), which it calls a margin expansion story that offers confidence in achieving a premium multiple to the industrial group.
Nov. 16, 2015, 10:33 AM
- Aerospace and defense shares are on the rise after calls to increase efforts to crush ISIS, the terrorist group responsible for Friday's attacks in France.
- Previously: World leaders wrap up G20 summit (Nov. 16 2015)
- Previously: French warplanes strike Islamic State targets in Syria (Nov. 15 2015)
- Related tickers: General Dynamics (GD +0.6%), Boeing (BA +0.2%), Northrop Grumman (NOC +3.2%), Lockheed Martin (LMT +2.5%), Raytheon (RTN +2.4%), Orbital ATK (OA +3.8%), Rolls-Royce (OTCPK:RYCEY +2.2%), Huntington Ingalls (HII +1.1%), Honeywell (HON +0.9%), United Technologies (UTX +0.4%), Airbus (OTCPK:EADSF), ITT (ITT +0.6%), Textron (TXT +1.7%), L-3 Communications (LLL +2.3%), BAE Systems (OTCPK:BAESY +2%), Finmeccanica (OTCPK:FINMY), Rockwell Collins (COL +1.7%).
Nov. 12, 2015, 2:26 PM
- Boeing (BA -1.5%) and Airbus (OTCPK:EADSY -3.3%) are sharply lower following engine supplier Rolls-Royce's (OTCPK:RYCEY -19.8%) warning of a weaker than expected 2015 earnings outlook and sharply weaker demand in 2016.
- Rolls-Royce, which makes engines for Boeing’s 787 Dreamliners and Airbus A380 superjumbos, says it expects sharply lower volumes of corporate jets powered by its engines next year, and that its aftermarket service segment had begun to suffer as customers use older, wide-body engines less and shift to more fuel-efficient planes.
- Rolls-Royce's gloomier outlook also comes as engines made by GE (GE -1.4%) and Pratt & Whitney (UTX +1.1%) for the Airbus A330 reportedly have driven down prices for its Trent 700 engines.
Oct. 20, 2015, 3:48 PM
- United Technologies (UTX +4%) rallies following its announced $12B boost to its stock buyback plan, even after it reported a 5.6% Y/Y decline in Q3 sales to $13.8B while earnings fell 26% to $1.36B.
- UTX already had accelerated share repurchases, buying back $4B this year - more than it did all last year - and now aims to have bought back $10B by year-end, which CEO Greg Hayes says will take advantage of “a big disconnect" between the company’s value and its share price.
- "Significant additional restructuring actions" will be announced in Q4, Hayes said in today's earnings conference call, including reduced overhead costs, but the focus will be on "factory rationalization," adding that more details would be provided in December.
- CFO Akhil Johri says he continues to expect orders to fall in China for Otis elevators after declining 19% in Q3, but Otis orders rose 47% in North America, driven by a contract win at the Hudson Yards development of new skyscrapers rising on Manhattan’s West Side.
- Despite the buybacks, UTX says it still has at least $1B on hand for acquisitions.
Oct. 20, 2015, 7:33 AM
- Net profit of $1.52B, or $1.61 per share vs. $1.85B, or $1.93 a share, in the same period a year ago. Excluding one-time items and restructuring charges, adjusted earnings per share were $1.67.
- Sales by segment: Otis +2%; UTC Climate, Controls & Security -2%; Pratt & Whitney +8%; UTC Aerospace +1%.
- UTX's Board of Directors authorized a new $12B share repurchase program, including the $6B accelerated share repurchase from net proceeds of the sale of Sikorsky (which is expected to close in Q4).
- The firm also confirmed it was on track to achieve its previous guidance range: EPS from continuing operations of $6.15-$6.30, on sales of $57B-$58B.
- UTX +0.4% premarket
- Q3 results
Aug. 20, 2015, 12:21 PM
- The WSJ reports United Technologies (UTX -1.6%) is in talks to buy HVAC/air quality/security system maker Nortek (NASDAQ:NTK).
- Nortek spiked higher on the report before getting halted.
- Update (12:23PM ET): Nortek has resumed trading, and is now up 17.6%.
- Update 2 (12:35PM ET): The full story is up. No potential deal price is given.
Jul. 21, 2015, 12:25 PM
- United Technologies (UTX -7.7%) suffers its biggest decline in dollar terms since September 2001, after warning that profit at its UTC Aerospace Systems and Otis elevator unit would be lower than expected in 2015.
- RBC says UTX's cut to 2015 guidance was significantly larger than it had expected, even though the company had cautioned at the Paris Air Show on both aerospace and Otis; the slump in the aerospace aftermarket is especially grim, the firm says, as the business had offset weak aftermarket growth in the Pratt & Whitney jet engine business.
- Sterne Agee CRT, which had said yesterday it was time to buy UTX after its sale of Sikorsky Aircraft, says softer end markets are hurting UTX's core legacy franchises but it would “look to add on weakness reflecting the likelihood of more aggressive buybacks and M&A."
Jul. 21, 2015, 7:52 AM
- Net profit of $1.54B, or $1.73 per share vs. $1.68B, or $1.84 a share, in the same period a year ago. Excluding one-time items and restructuring charges, adjusted earnings per share were $1.81.
- Sales by segment: Otis -8%; UTC Climate, Controls & Security +1%; Pratt & Whitney +2%; UTC Aerospace flat; Sikorsky -29%.
- Yesterday, UTC reached an agreement to sell Sikorsky to Lockheed Martin for $9B. Sikorsky will be reported in discontinued operations beginning in Q3.
- "With six months of trends behind us, it is now clear the commercial aftermarket at UTC Aerospace Systems will be significantly below our expectations for the year," said CEO Gregory Hayes. We now expect 2015 operating profit at UTC Aerospace Systems to be down $25M-$75M and at Otis to be down $25M-$75M at constant currency.
- Full year guidance: EPS from continuing operations of $6.15-$6.30 (including Sikorsky) vs. $6.35 to $6.55. Sales expectations from continuing operations have been revised to $57B-$58B from $58B-$59B.
- UTX -4.1% premarket
- Q2 results
Jul. 20, 2015, 12:49 PM
- Lockheed Martin (LMT +1.9%) hit a "trifecta" today following the announcement of its $9B purchase of Sikorsky Aircraft from United Technologies (UTX -0.7%), according to the analyst team at UBS.
- The deal cements LMT's dominance in weapons making and opens key foreign markets for the company, which has annual revenues of $45B; analysts do not expect antitrust objections since LMT does not build helicopters.
- LMT also announced a strategic review of a large portion of its government IT and services portfolio for a potential sale or spinoff.
- Also, LMT's Q2 results came in well ahead of consensus, with 3% revenue growth well ahead of the UBS forecast for a 6% decline and 12% margins coming in 30 bps better than expected.
- UTX shares also are worth buying, according to Sterne Agee CRT analyst Peter Arment, who says the Sikorsky sale is a "positive first step" in the transformation of its business portfolio and allows the company to return a large amount of cash to shareholders without reducing balance sheet flexibility; while Sikorsky generated ~10% of UTX sales, it only accounted for 6.5% of its profits.
Jul. 10, 2015, 3:04 PM
- Lockheed Martin (LMT +1.7%) is in advanced talks to buy the Sikorsky helicopter unit from United Technologies (UTX +1.3%), and an agreement could be reached in the coming days, Dow Jones reports.
- Earlier reports had said Textron (TXT +0.1%) also was a finalist in the bidding for the maker of Black Hawk helicopters.
- At a speculated price of $8B or more, a purchase of Sikorsky would be LMT’s largest since it bought Martin Marietta for ~$10B 20 years ago.
Apr. 21, 2015, 7:43 AM
- Net profit of $1.43B, or $1.58 per share vs. $1.21B, or $1.32 a share, in the same period a year ago. Excluding non-recurring items, adjusted earnings per share were $1.51.
- Otis elevator orders fell 7.1%, sales at Pratt & Whitney grew less than 1% to $3.33B, and sales at Sikorsky (which the company has been in talks about selling) fell 6.9% to $1.27B.
- Equipment orders at its UTC Climate, Controls & Security business were about flat at $3.85B.
- United Tech (NYSE:UTX) also affirmed its 2015 sales target of $65B-$66B and EPS guidance of $6.85-$7.05.
- UTX +1.1% premarket
- Q1 results
Mar. 12, 2015, 11:33 AM
- Sikorsky Aircraft would be a sought-after property if United Technologies (UTX +2%) follows through with a sale, probably as a tax-free spinoff that could be valued on a stand-alone basis of $7B-$8.5B, or $8-$10/share, Sterne Agee's Peter Arment calculates.
- Citi's Jason Gursky says a deal should be met favorably, Sikorsky is not well aligned with UTX’s vision of being exposed to end markets that will likely benefit from the world’s growing middle class.
- Gursky is looking to Northrop Grumman's (NYSE:NOC) 2011 spinoff of Huntington Ingalls as an example, which led to the levering up of the spinco and the repurchase of the parent company stock.
- Management has put no timeline on the potential alternative outcomes, but Arment expects a conclusion by mid-summer 2015.
United Technologies Corp. provides products and services to the building systems and aerospace industries worldwide. The company operates through five business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems, and Sikorsky. The Otis segment designs,... More
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