An Industrial Giant Flying High
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a diversified industrial giant: United Technologies (NYSE: UTX).
- Stable Revenue Growth: In 2007, United Technologies reported revenue of $54.8 billion; in 2012, the company announced revenue of $57.7 billion, representing year over year annual growth of 1.04%, a solid trend that is widely anticipated to continue into the future, with projections placing 2017 revenue at $81.9 billion. This revenue growth is in part a result of strong margins and their Pratt and Whitney Aircraft Engines segment increasing their share in their market.
- Dividend: At the moment, United Technologies pays out quarterly dividends of $0.54, which when annualized puts the dividend yield at 2.38%
- Institutional Vote of Confidence: 80.61% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
- Reasonable Valuation: Currently, UTX carries a price to earnings ratio of 16.79, a price to book ratio of 3.18, and a price to sales ratio of 1.43; all of which indicate a reasonably valued company based on the company’s stability and future prospects
- Diversification of Business: UTX’s business is divided among its six main segments: Pratt and Whitney, Otis Elevators, UTC Aerospace Systems, Carrier HVAC Systems, UTC Fire and Security, and Sikorsky Helicopters, all of which are in relatively different industries, with no one segment making up more than 25% of overall business, and with this comes a certain level of security and diversification
- Net Debt: Despite possessing $6.2 billion in cash and cash equivalents on their balance sheets, the company holds $36 billion of debt, representing net debt of $29.8 billion, which is 36% of its total market capitalization
- Single Digit Margin: At the moment, UTX carries a net profit margin of 8.39%, which leaves little room for unexpected expenditures
- Extreme Cyclical Nature: United Technologies is an extremely cyclical company, and suffers immensely in times of economic downfall, even more so than other companies
- Margin Compression: Over the past 30 years, United Technologies’ revenue has grown 821.1%, while gross profit has only grown 771.7%; representing margin compression, a troubling trend
- Dividend Growth: Since implementing their dividend program in 1936, UTX has consistently raised their dividend payouts, and this trend is widely anticipated to continue into the future as the company’s dividend payout ratio is only about 34% and revenue is growing steadily
- Growth in the Aviation Engine Market: In 2009, the global aviation engine market was worth $27.0 billion; currently, the market is valued at $30.7 billion, and further growth in this market could substantially benefit Pratt and Whitney, a segment which makes up 25.70% of its total business
- Growth in the Global Escalator and Elevator Market: In 2009, the global escalator and elevator market was valued at $46.9 billion; currently, the market is worth $52.0 billion, and further growth in this market could substantially benefit the Otis Elevator segment of UTX, which makes up 24.73% of total business
- Market Share: Any growth in market share in any of United Technologies’ segments could increase revenue, especially in the Pratt and Whitney and Otis Elevators segments, as combined they make up over half of total business
- Emerging Markets: The company realizes the unbridled opportunity in emerging markets as they heavily invest in their infrastructure, and has established a solid presence in these markets, which should offer substantial growth into the future
- Cuts in Government Spending: UTX’s aerospace companies all heavily rely on the US military to provide a substantial amount of revenue, from Sikorsky providing military helicopters to Pratt and Whitney providing engines used in a wide variety of military aircraft, and with probable military spending cuts approaching UTX could feel the consequences
- Competition: The industries United Technologies operates in are extremely competitive, and the battle to offer the best product for the least amount of money can lead to margin compression
- Economic Downfall: Any economic downfall could significantly hurt the company’s growth prospects, as in recessions the company has faltered
- Boeing Dreamliner Problems: Hamilton Sundstrand’s systems are found on Boeing’s 787 Dreamliner aircrafts, and further complications for Boeing’s Dreamliner could halt production
Major publicly traded competitors of United Technologies include Lockheed Martin (NYSE: LMT), General Electric (NYSE: GE), Northrop Grumman (NYSE: NOC), and Honeywell International (NYSE: HON). All of these companies operate in industries in which UTX has a presence. Lockheed Martin is valued at $28.22 billion, pays out a dividend yielding 5.27%, and carries a price to earnings ratio of 10.43. General Electric is valued at $237.20 billion, pays out a dividend yielding 3.36%, and carries a price to earnings ratio of 16.29. Northrop Grumman is valued at $15.58 billion, pays out a dividend yielding 3.38%, and carries a price to earnings ratio of 8.34. Honeywell is valued at $54.17 billion, pays out a dividend yielding 2.37%, and carries a price to earnings ratio of 18.69.
The Foolish Bottom Line:
Financially, United Technologies is relatively solid. The company possesses solid revenue growth and a sizeable dividend. The net debt of the company is troubling; however, the tremendous diversification of the company is beneficial. UTX’s reliance on military spending may prove to be detrimental, but the company is located in markets poised for growth. All in all, United Technologies is a great diversified investment that should perform slightly above the overall market for decades to come.
makinmoney2424 has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company, Lockheed Martin, and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!