Is United Technologies Corporation Destined for Greatness?

Let's see what the numbers say about United Technologies (UTX).

Feb 8, 2014 at 8:45AM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does United Technologies Corporation (NYSE:UTX) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell United Technologies' story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at United Technologies' key statistics:

UTX Total Return Price Chart

UTX Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(11.9%) vs. 30.8%


Improving EPS



Stock growth (+ 15%) < EPS growth

57.1% vs. 32.3%


Source: YCharts.
*Period begins at end of Q4 2010.

UTX Return on Equity (TTM) Chart

UTX Return on Equity (TTM) data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%



Source: YCharts.
*Period begins at end of Q4 2010.

How we got here and where we're going
United Technologies puts together a passable performance by picking up four out of nine possible passing grades. United Technologies' revenue has been growing quite steadily, but the company's free cash flow started to diverge from its net income over the past few quarters. Moreover, United Tech's stock growth has been outpacing the growth of its bottom line, which could be a sign of unsustainable valuations. How might this diversified manufacturer fuel greater revenue growth and reverse the decline in its free cash flow? Let's dig a little deeper to find out.

United Tech recently posted market-topping revenue and earnings -- which are up 9% and 16% respectively -- as compared to 2012's results. United Tech's management noted that the company sports a strong pipeline of commercial orders for the upcoming year, and it expects to invest almost $4 billion in capital expenditures, acquisitions, and share repurchases this year. However, United Technologies has been plagued by persistent problems with Boeing's (NYSE:BA) 787 Dreamliner aircraft, for which it supplies important components, as well as underwhelming ongoing economic conditions in Europe coupled with falling demand from military customers.

The company should benefit from its underlying competitive advantage in aerospace and building systems business as both air travel and urbanization continue to grow in sync with each other. With its acquisition of Goodrich, United Technologies is expected to save around $500 million from cost synergies by 2016, which will boost earnings by the tune of $250 million per year.

United Technologies stumbled last week due to rumors of a spinoff of its Sikorsky helicopter division, which has become the focal point of a heated debate among shareholders. Fool contributor Rich Smith points out that Sikorsky would be valued at just one time its annual sales, whereas United Tech's shares currently trade at 1.65 times sales. Sikorsky also continues to benefit from increased Department of Defense spending -- the segment recently won a $724 million contract to provide 57 Black Hawk helicopters by June 2015. United Tech also bagged a $549.9 million contract to deliver 37 Sikorsky Seahawk helicopters to the U.S. Navy.

Other United Tech divisions also continue to earn big contracts, including one $167 million award for operational and maintenance support on F135 engines for Lockheed Martin's F-35 stealth fighter jets through December 2016. Rich Smith notes that United Technologies has several government defense projects in other countries as well, including a $183 million contract to set up and install ground stations for the Royal Saudi Air Force, and a $4.7 billion contract with Canada to deliver 28 Cyclone Maritime helicopters built by both Sikorsky and General Dynamics.

Putting the pieces together
Today, United Technologies has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Bet on the long-term growth of America with this secret weapon
U.S. News and World Report says this "will drive the U.S. economy." And Business Insider calls it "the growth force of our time." In a special report titled "America's $2.89 Trillion Super Weapon Revealed," you'll learn specific steps you can take to capitalize on this massive growth opportunity. But act now, because this is your shot to cash in before the fat cats on Wall Street beat you to the potentially life-changing profits. Click here now for instant access to this free report.

Alex Planes has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics and Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers