Multi-sector stocks in the equity market have been gaining strength, of late, on the back of escalating demand for air travel, technological upgrade in manufacturing processes, as well as improving operations in the oil and gas industry. Reduced corporate-tax rates, steaming-up industrial activity in the United States, and increased government spending will likely continue to benefit these companies.
Such multi-sector stocks are grouped under the Zacks Conglomerates sector that currently occupies the sixth position among the 16 Zacks sectors.
Among the numerous potential gainers within the sector, addingUnited Technologies Corporation (UTX - Free Report) to your portfolio will be a promising investment move at the moment. This stock currently carries a Zacks Rank #2 (Buy).
The above graph shows that over the past month, United Technologies’ stock has rallied 3.2%, outperforming 0.8% and 0.5% growth recorded by the sector and the benchmark S&P 500 Group, respectively.
Why Should You Pick the Stock?
Robust Top-Line Prospects: United Technologies’ revenues grew 4.8% in the first six months of 2018. United Technologies believes strength in Otis, Climate Control and Security, Pratt & Whitney, as well as the aerospace businesses will likely drive the company’s top-line performance in the quarters ahead. The company currently anticipates generating sales of $63.5-$64.5 billion in 2018, estimating organic growth rate of 5-6%.
Per our estimates, United Technologies’ year-over-year revenue growth is currently pegged at 7.3% and 8.1% for 2018 and 2019, respectively.
Profitability:United Technologies pulled off an average positive earnings surprise of 7.31% in the past four quarters. The company believes stronger revenues, diligent cost-reduction moves, lower corporate tax rates and favourable foreign currency translation impact will drive its bottom-line performances in the quarters ahead. United Technologies currently estimates earnings of $7.10-$7.25 per share in 2018, higher than the previously estimated range of $6.95-$7.15 per share.
Per our estimates, United Technologies’ year-over-year earnings growth is pinned at 8.7% and 9.2% for 2018 and 2019, respectively. Moreover, the company’s earnings per share are predicted to be up 9.1% in the next three to five years.
Robust Acquisition Platform: United Technologies intends to become more competent on the back of strategic business acquisitions. Last September, the company inked a definitive agreement to acquire Rockwell Collins for $30 billion in a combination of cash and stock. The company will emerge as one of the largest aircraft equipment manufacturers on the back of this buyout, and estimates securing synergies of more than $500 million in the first full year of the deal’s closure. The transaction is expected to close in the current quarter. In August 2018, United Technologies inked an agreement to acquire Predikto Inc. for an undisclosed amount, in a bid to strengthen its data analytics and digital capabilities. In September, the company announced that it has agreed to acquire S2 Security, in order to boost its existing security business portfolio. We expect that these acquisitions will strengthen United Technologies’ revenues and profitability in the quarters ahead.
Strong Liquidity: United Technologies is trying to improve its free cash flow. The cash flow allows management to invest in product innovations, acquisitions and business development. The company has reiterated its free cash flow guidance for 2018 in the $4.5-$5 billion range.
Other Key Picks
Some other top-ranked stocks in the Zacks Diversified Operations industry are listed below:
Federal Signal Corporation (FSS - Free Report) sports a Zacks Rank of 1 (Strong Buy). The company pulled off an average positive earnings surprise of 22.48% over the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
Macquarie Infrastructure Company (MIC - Free Report) also flaunts a Zacks Rank of 1. The company delivered an average positive earnings surprise of 8.05% over the trailing four quarters.
Danaher Corporation (DHR - Free Report) carries a Zacks Rank of 2. The company generated an average positive earnings surprise of 4.95% during the same time frame.
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