Defense Stocks

United Technologies Corporation Valuation – May 2016 $UTX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how United Technologies Corporation (UTX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Technologies Corporation is engaged in providing high technology products and services to the building systems and aerospace industries around the world. The Company operates through four segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney, and UTC Aerospace Systems. Its Otis segment designs, manufactures, sells and installs a range of passenger and freight elevators, as well as a line of escalators and moving walkways. Its UTC Climate, Controls & Security segment, is the provider of heating, ventilating, air conditioning (HVAC) and refrigeration solutions. The Company’s Pratt & Whitney segment supplies aircraft engines for the commercial, military, business jet and general aviation markets. Its UTC Aerospace Systems segment is a provider of aerospace products and aftermarket service solutions.

Downloadable PDF version of this valuation:

ModernGraham Valuation of UTX – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $85,031,199,453 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 78.89% Pass
6. Moderate PEmg Ratio PEmg < 20 13.08 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.93 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.10 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

UTX value Chart May 2016

EPSmg $7.65
MG Growth Estimate 7.18%
MG Value $174.94
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $110.95
MG Value based on 0% Growth $65.04
Market Implied Growth Rate 2.29%
Current Price $100.06
% of Intrinsic Value 57.20%

United Technologies Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.17 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

United Technologies Corporation fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

UTX Charts May 2016

Net Current Asset Value (NCAV) -$39.33
Graham Number $79.77
PEmg 13.08
Current Ratio 1.34
PB Ratio 2.93
Current Dividend $2.56
Dividend Yield 2.56%
Number of Consecutive Years of Dividend Growth 20

 

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $27,527,000,000
Total Current Liabilities $20,523,000,000
Long-term Debt $21,688,000,000
Total Assets $88,571,000,000
Intangible Assets $43,127,000,000
Total Liabilities $60,218,000,000
Shares Outstanding (Diluted Average) 831,200,000

Earnings Per Share History

Next Fiscal Year Estimate $8.34
12/1/2015 $8.61
12/1/2014 $6.82
12/1/2013 $6.25
12/1/2012 $5.66
12/1/2011 $5.49
12/1/2010 $4.74
12/1/2009 $4.12
12/1/2008 $4.90
12/1/2007 $4.27
12/1/2006 $3.71
12/1/2005 $3.03
12/1/2004 $5.52
12/1/2003 $2.35
12/1/2002 $2.21
12/1/2001 $1.92
12/1/2000 $1.78
12/1/1999 $1.51
12/1/1998 $1.26
12/1/1997 $1.05
12/1/1996 $0.86

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.65
12/1/2015 $7.06
12/1/2014 $6.12
12/1/2013 $5.60
12/1/2012 $5.17
12/1/2011 $4.86
12/1/2010 $4.48
12/1/2009 $4.23
12/1/2008 $4.29
12/1/2007 $3.91
12/1/2006 $3.61
12/1/2005 $3.37
12/1/2004 $3.28
12/1/2003 $2.09
12/1/2002 $1.89
12/1/2001 $1.65
12/1/2000 $1.44

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – February 2016
11 Best Stocks For Value Investors This Week – 11/21/15
United Technologies Corp Valuation – November 2015 Update $UTX
26 Companies in the Spotlight This Week – 11/22/14
United Technologies Corporation Annual Valuation – 2014 $UTX

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United Technologies Corp Valuation – November 2015 Update $UTX
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Raytheon Company Analysis – July 2015 Update $RTN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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