Year to date, the shares of United Technologies (UTX) are up 11.8%. The company recently made news when its air conditioner division announced it would send jobs to Mexico. Last month, the company changed course following pressure from president-elect Trump. Can this stock stay hot, or are things about to get chilly?
Last night, on CNBC's Mad Money, Jim Cramer interviewed United Technologies CEO Greg Hayes about the Carrier controversy. Hayes told Cramer that the company would keep 1,000 jobs in Indiana, but the company was ultimately focused on training workers for the jobs of the future. Wages in Mexico are about 80% lower on average; absenteeism runs at about 1% and turnover runs at about 2%.
Since the company has already completed most of the restructuring, keeping the remaining jobs in the United State is not a "big deal". Ultimately, jobs will be lost because the company is planning to invest $16 million in automation in the Indiana factory to improve its competitiveness.
Carrier Air Conditioners is a small part of United Technologies. UTX is a huge industrial conglomerate, with five divisions and two groups. The Commercial Group includes Otis Elevator and Climate Control & Security, which include Carrier air conditioning. The Aerospace Group consists of Pratt & Whitney aircraft engines and Aerospace Systems, which are made up of aviation controls.
The company sold its helicopter business in 2015. Approximately 60% of its revenue comes from overseas. About 10% of revenue comes from contracts with the federal government.
Back on Oct. 25, United Technologies reported third-quarter earnings per share of $1.76, $0.09 better than the analyst estimate. Revenue rose 4.1% to $14.35 billion, slightly better than expected.
Otis reported revenue of $3,018 billion, down 1%. Climate and Control revenue was $4.415 billion, up 3%, while Aerospace adjusted revenue was $3,685 billion, up 14%. Aerospace System had adjusted revenue of $3.646 billion, up 5%.
For fiscal year 2016, management believe the company is on track to deliver adjusted earnings between $6.55 and $6.60 on sales of $57-58 billion. Organic sales are expected to increase 2-3%.
During the quarter, the company completed its $6 billion accelerated share repurchase program. Management remain on track to return $22 billion in cash to shareholders from 2015 through 2017.
Despite the Carrier controversy, I think the shares of United Technologies are headed higher. Pratt & Whitney has a backlog of 8,000 jet engines, which will provide earnings growth for several years. The company's restructuring plans are nearly complete, which will allow the company to reduce its expenses and expand operating margins. Sales are expected to rise 4.8% in fiscal 2017 and another 5% the year after.UTX's 10-year average multiple is 16x forward estimates, but the shares should trade a slight premium because of the order backlog and the gigantic share buyback. If investors give the stock a higher premium of 17.5x estimates, the share price should be able to reach $120. I think UTX is heating up.