It's beginning to look a lot like Christmas for United Technologies
Most of the growth will be "organic" in character, but UTC does leave room for a percent or three to come in the form of acquisitions. Best of all, management promises that earnings quality will be strong, and is convinced that free cash flow will exceed reported "net income" under GAAP accounting standards this year. Next year's less certain, but management's going to do its best to keep free cash flow "equal to or in excess of net income" once again.
What this works out to, valuation-wise, is a stock selling for about 16.7 times current-year earnings and free cash flow, and for roughly 15.1 times next year's numbers. While that may not sound expensive -- a share of General Electric
For one thing, a 16.7 trailing P/E tops the level of the company's average P/E score for the past five years. For another, long-term, analysts are expecting UTC to basically perform as promised in 2011 alone -- 10% annual profits growth. Toss in a 2.2% dividend, though, and you're still looking at a John Neff-style "total return ratio" of nearly 0.75 -- hardly a bargain.
What's an investor to do?
So is that it? UTC's too expensive -- end of story, move on to the next article? Never fear, dear Fool. I wouldn't do that to you. While UTC may not offer much potential for profit, the CEO's comments on broader market trends just might. According to Chenevert, UTC is seeing "end market improvement" for its products, "with particular strength in emerging markets and commercial aerospace aftermarket."
This suggests you might have some luck hunting for deals in adjacent industries. Relative to UTC, both Boeing
Long story short: Bargains are out there, but in today's frothy market, you'll have to hunt for them.
