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On Jan 25, we reaffirmed our Neutral recommendation on United Technologies Corporation (UTX - Analyst Report). The integration of transformational deals and solid execution drove 16% earnings growth in the reported quarter despite a slower-than-expected recovery in end markets. United Technologies has a diversified business mix and wide geographical presence to mitigate operating risks. The company also has a strong balance sheet with adequate liquidity to fuel its growth engine. However, the company’s long-cycle business patterns could affect its profitability to some extent and force us to remain on the sidelines.
Why Reiterated  

United Technologies is a diversified business conglomerate serving various end-markets such as aerospace, defense and commercial construction, which move according to their own cycles. This business mix and diversification allows the company to remain profitable even during tough economic times, delivering consistent earnings and dividend growth

The company has an experienced management team that is likely to capitalize on the continued global economic recovery and deliver sustainable earnings growth in 2014. Additionally, the accelerated organic sales growth and continued strength in orders are growth catalysts in 2014.

The company continues to invest in innovative new products delivering value to its customers and securing orders that will drive top-line growth in future.
However, the financial performance of the company depends on the conditions of the construction and aerospace industries. United Technologies is also highly dependent on the U.S. government’s budgetary allocation for defense. A reduction in capital spending for the commercial aviation or defense industries could have a significant effect on demand for its products, which could in turn have an adverse impact on its financial performance.

Over the last 7 days, the Zacks Consensus Estimate for 2014 earnings per share has decreased by a penny to $6.81.  For 2015, it increased by two cents to $7.58 per share during the same period.

Other Stocks to Consider

United Technologies currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look include Hutchison Whampoa Ltd. (HUWHY), Carlisle Companies Inc. (CSL - Snapshot Report) and Crane Co (CR - Snapshot Report), each having a Zacks Rank #2 (Buy).

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