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United Technologies' (UTX) Unit Set to Acquire S2 Security

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In a bid to strengthen its core business, UTC Climate, Controls & Security — a unit of United Technologies Corporation — recently announced that it has agreed to acquire S2 Security. Notably, UTC Climate Control and Security is one of the leading manufacturers and distributors of HVAC and refrigeration systems for residential, commercial, industrial and transportation applications. The buyout is conditional upon regulatory approvals and customary closing conditions.

Based in Framingham, MA, S2 Security is the manufacturer of IP-based physical security and video management systems for healthcare, education and manufacturing companies in the United States and abroad.

Rationale Behind the Acquisition

United Technologies believes this buyout will enable it to boost its security portfolio as well as enhance service capabilities and offerings to its customers. The complementary product portfolios and customer bases of both the companies are likely to benefit customers and channel partners.

Separately, United Technologies also clinched a five-year contract to supply aircraft parts to the U.S. Air Force. Notably, per the contract, which is a modification to an existing deal, United Technologies will deliver the Air Force depot level with repairables and consumable parts. The value of the deal is worth up to $2.46 billion.

Our Take

United Technologies serves various end markets such as aerospace, defense and commercial construction, which help in offsetting weakness in a single market. Also, the company’s continuous investment in innovative products through higher engineering spend enables it to secure orders.

In the past six months, shares of United Technologies have yielded 14.4% return, outperforming the industry’s growth of 4.8%.

Moreover, the Zacks Rank #3 (Hold) company is experiencing strength in commercial aerospace aftermarket business and innovation investments. Strength in Otis, Climate Control and Security, Pratt & Whitney, as well as the aerospace businesses will likely drive the company’s top-line growth in the quarters ahead.

However, material cost inflation is currently augmenting the company’s costs. This, along with additional tariff imposition, might continue to escalate its expenses in the near term.

Stocks to Consider

Some better-ranked stocks from the same space are Federal Signal Corporation (FSS - Free Report) , Crane Company (CR - Free Report) and Danaher Corporation (DHR - Free Report) . While Federal Signal sports a Zacks Rank #1 (Strong Buy), Crane Company and Danaher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal surpassed estimates in each of the preceding four quarters, with an average positive earnings surprise of 22.48%.

Crane Company beat estimates in each of the trailing four quarters, with an average positive earnings surprise of 3.03%.

Danaher surpassed estimates in each of the trailing four quarters, with an average positive earnings surprise of 4.95%.

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