Now that Christmas is out of the way, it's time for that other "most wonderful time of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their fourth-quarter and full-year results. Next up, defense contractor United Technologies (NYSE:UTX), which reports bright and early Tuesday morning.

What analysts say:

  • Buy, sell, or waffle? One more analyst has begun tracking United Technologies since last quarter. That makes 18 still saying to buy it, and now three saying hold.
  • Revenues. On average, Wall Street is looking for 9% revenue improvement, to $11.2 billion.
  • Earnings. Profits are predicted to more than double that, with 20% growth to $0.85 per share.

What management says:
In many respects, last quarter was an exceptional one at UT. The firm beat estimates, grew revenues at a double-digit clip, grew earnings nearly twice as fast, and upped its guidance for this year's earnings. Carrier and Sikorsky continue to lag the overall strength of the firm, however, and aerospace inventories remain a problem. All of which contributes to my thinking that Tuesday's news will show UT to have fallen short of its free cash flow goal for the year.

What management does:
The thing about goals, though, is that they're relative. Set a goal and miss it, and you're judged a failure regardless of how near the miss, or how objectively great the results. And speaking of objectivity, objectively-speaking, UT is on a roll. In each of the last three quarters, each of its rolling gross, operating, and net margins have climbed skyward.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

28.8

28.9

28.0

28.2

28.3

28.5

Op.

13.4

13.5

12.7

12.9

13.3

13.7

Net

7.4

7.4

7.2

7.3

7.4

7.5
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Most of what I'd ordinarily look at in previewing a firm's earnings release, I've already covered in detail -- in last quarter's post-earnings write-up. So to add a little value here, let's look at the firm from a different angle: that of valuation.

Based on the back-of-the-envelope full-year free cash flow estimate I worked up back in October, I have the company generating roughly $3.4 billion worth of free cash flow in fiscal 2006. At its current market capitalization of $65.4 billion, therefore, UT shares are changing hands for about 19 times current free cash flow (add in the firm's net debt, and the enterprise value-to-free cash flow ratio comes to 21). When you consider that it is projected to grow its profits at just 11% per annum long-term, that looks a mite pricey to me. So much as I admire United Technologies, I intend to do so from afar until the price comes down considerably.

Competitors:

  • Boeing (NYSE:BA)
  • General Electric (NYSE:GE)
  • Honeywell (NYSE:HON)
  • L-3 (NYSE:LLL)
  • Siemens (NYSE:SI)
  • Textron (NYSE:TXT)

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Fool contributor Rich Smith does not own shares of any company named above.