Sikorsky S-70i Black Hawk helicopter. Image source: Sikorsky. 

It hasn't been a great few weeks for the stock market. As of this writing, the S&P 500 is down 12.25%, and the Dow Jones Industrial Average down 13.45%, since July 20. This is attributable to a number of things, including news of China's economic downturn. More important, because of this news, a number of companies have seen their stock price drop.

However, there is one company that seems to be doing even worse than its peers, and that is United Technologies (RTX -0.04%), also known as UTC. For example, as of this writing, UTC is down 19.01% from July 20, while its peers Northrop Grumman and Lockheed Martin are down 5.97% and 3% respectively, over that same time frame. So, what's caused UTC's stock to drop, and is it justified?  

The drop
UTC has five principal business segments: Otis, which builds, installs, and services elevator and escalators; UTC Climate, Controls & Security, which is the leading provider of HVAC and refrigeration solutions; Sikorsky, which builds helicopters (and which UTC is selling to Lockheed Martin for $9 billion); Pratt & Whitney, which builds aircraft engines; and UTC Aerospace Systems, which provides aftermarket service solutions for aircraft manufacturers -- including things like engine control systems, engine components, surveillance, and reconnaissance systems. 

The PW1100G-JM engine. Image source: Pratt & Whitney.

Moreover, on July 21, UTC reported its Q2 earnings. The good news? The company reported 3% organic sales growth. The bad news? It also reported a 5% decline in net sales, and a 6% decline in EPS. Furthermore, it downgraded its expectations from continuing operations from $6.55-$6.85 to $6.15-$6.30. And it revised its sales expectations from continuing operations to $57 billion-$58 billion, down from $58 billion-$59 billion. Clearly, that wasn't the best news, and not what investors wanted to hear. 

Just a hiccup?
However, this doesn't mean UTC's significant drop in stock price was, or is, justified.

UTC (in billions except EPS and operating profit margin)

2012

2013

2014

Consolidated net sales

$57.7

$62.6

$65.1

Operating profits

$7.7

$9.2

$9.8

Operating profit margin

13.3%

14.7%

15%

Diluted EPS

$5.35

$6.21

$6.82

Source: UTC 2014 Annual Report. 

As you can see, for the past three years UTC has consistently grown net sales, operating profits, and EPS. Plus, of UTC's five business segments, UTC Climate, Controls & Security is the most profitable, with $16.8 billion in net sales for 2014. The next highest business segment, Pratt & Whitney, had $14.5 billion in net sales for 2014. Furthermore, these business segments have been the biggest drivers of sales over the past three years.

Circa 1931 Otis escalator at Wynyard railway station, Sydney, Australia.Image source: Milesli via Wikimedia Commons.

However, thanks to its 20.3% operating margin, Otis' operating profits for 2014 were the second highest at $2.64 billion (Climate, Controls & Security was still No. 1 with $2.78 billion), followed by UTC Aerospace Systems with $2.35 billion.  This is important to remember when looking at UTC's Q2.

For the quarter ending June 30, 2015, UTC Climate, Controls & Security brought in $4.45 billion in net sales, which was an increase from $4.42 billion from the same time last year. Likewise, Pratt & Whitney also increased its net sales for the quarter. Unfortunately, both Otis and UTC Aerospace Systems declined, with Otis declining significantly -- it brought in $3.09 billion in Q2 compared to $3.36 billion for the same time last year. This, according to UTC, was due to a decline in sales in Europe and China, and was compounded by unfavorable currency fluctuations. More important, it was because of these issues that UTC lowered its forecast for 2015.

UTC's future
UTC's lowered expectations aren't great, and thanks to news coming out that China's economy is slowing down, it's likely that UTC's Otis will continue to see hampered sales. But that doesn't mean UTC is in significant danger. Indeed, if you look past UTC's Q2 report, you can see that UTC has a number of different business segments that are profitable, and have continually generated sales.

Furthermore, UTC has a number of things going for it at this point. UTC is still generating positive cash flow. It's a dividend-paying stock -- its current yield is 2.8%, with an annual payout of $2.56 a share and a payout ratio of 35%, according to Yahoo! Finance. Plus, UTC's P/E is currently 12.83, which is below the Aerospace/Defense Products and Services average of 18.90.

Even better? Its stock is trading around $89 a share, which is near its 52-week low, and is a great entry point. As such, while UTC's recent Q2 wasn't the best, and the slowdown in China's economy will likely continue to impact UTC's Otis sales, there are a lot of upsides to UTC. Consequently, while Wall Street has continued to punish UTC, this seems like an overreaction, as UTC could make a great addition to a long-term investor's portfolio.