Despite all the talk of constriction in the credit markets, Wall Street's buyback binge continues. The latest adherent to the "Corporation, buy thyself" philosophy is defense contractor United Technologies (NYSE:UTX), which on Tuesday: (1) reiterated guidance for about $4.20 per share in GAAP earnings, and even more free cash flow, and (2) promised to spend even more of that free cash flow than originally planned on share repurchases. Specifically, UTC has decided to up its previously announced $1.5 billion repurchase authorization by a half a billion, to $2 billion.

Like the man said, "a billion here, a billion there ... " So UTC is now officially spending "real money." The question remains, though: Does UTC have the money to spend -- and even if it does, is this the best use of that money? We'll examine those questions today.

Can it pay?
Covenants with its bankers permitting, UTC has enough scratch lying around to buy back its shares immediately. The firm's $3.3 billion in cash and equivalents are more than adequate to the task. And there's more where that came from. Assuming CEO George David's assertion proves true, his firm will generate more than $4.2 billion in free cash flow this year. Heck, given a year to play with, UTC could (in theory) do the entire buyback, re-up to buy back some more, and pay down more than half of its debt, all while walking and chewing gum.

Should it pay?
Honestly, I'm not so sure it should. Priced at 19 times trailing earnings, UTC looks a bit on the pricey side in light of its projected 11% long-term earnings growth. But while the absolute valuation looks high, might UTC be at least a relative bargain? Let's find out.

P/E

Price-to-Free Cash Flow

Projected Growth Rate

UTC

19

19

11%

Boeing (NYSE:BA)

21

14

15%

General Dynamics (NYSE:GD)

18

18

11%

General Electric (NYSE:GE)

20

22

11%

Lockheed Martin (NYSE:LMT)

15

14

12%

Foolish takeaway
The way I see it, UTC's no bargain from an objective standpoint, and it's also expensive relative to its defense contractor peers. Within this group, only Boeing looks like an out-and-out bargain, with a growth percentage greater than its price-to-free cash flow ratio. But whether your favorite flavor of valuation is plain-vanilla PEG, or extra fancy price-to-free cash flow-to-growth, UTC ends up second only to General Electric in overvaluation.

Maybe UTC management should take a hint from Mr. Market's reaction to its buyback announcement (the share price hardly budged) and think up a better way to create value for shareholders. Buying overpriced shares doesn't seem to do the trick.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.