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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: Rande Is who wrote (11672)	9/5/1999 3:52:00 PM
From: Trumptown	Read Replies (1) \| Respond to of 57584

Tall order to fill...on a huge company...well here's what I find interesting: UTX was primarily a defense contractor that sold mostly to the US government. At one point, I believe commercial sales were well below the 50% mark. Today, government sales (including NASA) represent less than 13% of total revenues...so they have successfully built a significant commercial business... Share price was on a strong uptrend (recently broken, but so far support at low $60's has held) The UTX home page is extensive and provides many useful links: utc.com The profile provides an excellent top level perspective of UTX: utc.com While the fuel cell portion of the business is certainly small, growth in this area is sure to be strong. UTX has the tendency to grow various business segments into market leaders (Otis, Carrier, Pratt & Whitney, etc) UTX also recently acquired Sundstrand and is in the process of merging it with Hamilton Standard...Sundstrand is very profitable and currently much of the Sundstrand management is expected to filter into the high places at Hamilton. As far as share structure goes...I am far from an expert in this area. Maybe someone else can take a look. However, I understand that the 401K matched contributions are accomplished with a 'common preferred' stock. Also, the float is obviously very large...but eps looks good...and profit margins also seem to be on an increasing trend... Highlites from S&P: "Judicious acquisitions of profitable operations with solid growth prospects, divestitures of low-margin, slow growing businesses, strong organic growth of existing high-margin businesses, and stock buybacks fueled UTX's torrid five-year annual EPS growth of 23% and ROE in excess of 20%. In coming periods, we forecast that near-term EPS growth and improved profitability will continue, fueled by a recent pact to purchase Sundstrand (a highly profitable maker of aircraft power systems), and an agreement to sell UTX's low margin, slow growing auto components unit. Solid beachheads in international markets, a continuation of aggressive yet judicious acquisitions, and ongoing efforts to boost the proportion of sales of higher-margin parts and service offerings will materially bolster long-term EPS growth and profitability. In particular, we see the higher-margin aircraft parts and servicing operations continuing to benefit from longer aircraft lives and a long-term trend to increasing airline outsourcing of maintenance operations. Valuation 23-MAR-99 In the past seven years, the shares have materially outpaced the broader market, rising at an annualized rate of 22%, versus 17% for the S&P 500 index. Although UTX's stellar long-term price performance was fueled by outsized EPS growth and profitability, we believe the price performance also benefited from a depressed 1991 base. In coming periods, we forecast continued solid EPS growth and ROEs, but not at historical rates; we estimate that EPS growth will slow from UTX's latest five-year annual rate of 23% to a still very respectable, sustainable annual rate of 15%. Based on these projections, we value UTX at $101 a share. We would therefore not recommend adding to positions until the stock trades at more reasonable levels. Business Summary 23-MAR-99 UTX's disparate mix of businesses reflects management's desire to limit the impact of any one industry on UTX's financial results. A recent agreement to acquire Sundstrand Corp.'s highly profitable aircraft replacement parts and service businesses, and to sell UTX's low margin, capital-intensive auto components unit, reflects the company's ongoing efforts to improve earnings growth and profitability. The company's multi-year quest to boost profits and free cash flow shown improvement in segment profit margins and UTX's free cash growth in recent years: 1998 1997 1996 OPERATING PROFIT MARGINS Pratt & Whitney 13% 11% 10% Flight Systems 10% 10% 9% Carrier 7% 8% 7% Otis 10% 8% 9% Automotive (To be sold in 1999) 6% 6% 6% FREE CASH FLOW $6.32 $5.35 $3.95 _________ Bottom line: UTX is a VERY diversified company with good financials. This will probably keep the share price from having big swings. Certainly a nice long term hold. I plan to swing trade it into mid/late September, then buy again before the end of the year (probably early November) SR