Moving Ahead With a Flurry of Acquisitions
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Acquisition have been the forte of United Technologies (NYSE: UTX), as the company has made 72 deals between the years 2007 to 2011 worth $22.6 billion. The company has a history of making acquisitions, and the Goodrich deal is one of its record breaking deals. United Technologies is shifting its focus towards the aviation market, and this deal will increase its exposure in this market and expected to add 50 cents per share earnings in 2013.
Lee Ainslie, owner of Maverick Capital, purchased a new stake of $180 million in United, which is 2.83% of his total portfolio. Lee is known for his simplistic investment strategies and is outperforming the S&P 500 by 4% points, returning 7.7% year to date. United Technologies is currently trading at $80.11, up around 7% year to date.
United’s closest competitor General Electric (NYSE: GE) has also taken a strategic step in its aviation segment (GE Aviation) and has acquired Morris Technologies and its subsidiary Rapid Quality Manufacturing in order to upgrade its manufacturing expertise. See my detailed coverage on GE here. With this move the company will be able to meet the growing demand for jet engines by increasing its production rate for the next five years. This segment of General Motors has contributed 13% to its total revenue in 2011. The company is trading at a forward P/E of 12.43 for one year, and its forward dividend yield is 3.20%, which is more than that of UTX, which is 2.70%.
On the other hand Honeywell International (NYSE: HON) is also busy making big deals. The company has entered into a deal with Boeing for supplying electronic bleed air systems for the 737MAX that keeps cabin pressure in control and helps get ice off the wings. As covered in my last post, Honeywell is one of the largest suppliers for the 737MAX and its first delivery is scheduled in 2017. To date the total number of orders the company has comes to 1009. The company has made another deal in China with China Eastern Airlines for its Boing 737 NG. These deals will enhance its growth substantially. The company's forward P/E ratio is 12.39x, which is more than UTX's.
Focusing back on United Technologies, the company will continue to grow with its new deals and a rich contract with Goodrich. Let’s shed a light on these fundamentals:
Contracts in-line: United Technologies’ subsidiary Pratt & Whitney, a leader in designing, manufacturing, and servicing of aircraft engines, has recently received a contract from the U.S. Army to develop an AVSPOT (Advanced Variable-Speed Power Turbine), which will help US Army to meet rotorcraft lift requirements. And, the company is confident that it will meet up the requirements as it has the proficiency that will enable it to manufacture an efficient high power turbine with the capabilities of operating over different engine speeds. There has been a 16% y/y growth in Pratt & Whitney. Whereas the company's unit Sikorsky Aircraft (maker of the UH-60 Black Hawk helicopter) has received a US Army contract of $804 million to build UH-60M and HH-60M helicopters. These two contracts seems to be the bright spots for the company.
Acquisition: The company's Goodrich (maker of landing gears and aircraft components) deal, worth $18.5 billion, is considered to be a record-breaking acquisition and a long term investment that is expected to contribute half of the company's sales. As the demand is continuously increasing in the aerospace market, it is believed that United Technologies has made a move in the right direction for its aerospace segment. The acquisition will result in cost savings and product integration for Boeing and Airbus aircraft. This deal has added a company that is a leader in the aircraft landing gear segment to United’s manufacturing facilities, and this will further give UTX a strong foothold in the aerospace market.
Besides these fundamentals, United Technologies has huge potential in emerging markets such as China and India, which are growing at a faster pace compared to its market in the US. The company generates 20% of its revenue from these markets and it is expected to continue with the same in future. Further, its restructuring plan has been increased from $500 million to $600 million for 2012. The company will also be investing $63 million in Pratt & Whitney in order to broaden its manufacturing abilities in West Palm Beach facility. These restructuring plans and acquisitions will definitely bring in long term growth for the company.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. 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!