All year, shares of United Technologies (UTX ) have been locked in a tight range of 49 to 54 -- in part because the company is a conglomerate. Once the darling of investors, the group has long been out of favor. With the stock now at 52, or 14 times 2006 estimated earnings of $3.50 a share, it trails its peers. This is an "attractive entry point to a stock worth 60," argues Owen Fitzpatrick of Deutsche Bank Private Banking (DB ), which owns shares. He notes that its major units are leaders in their fields: Pratt & Whitney, one of the Big Three jet-engine makers, accounts for 29% of total sales and 34% of earnings; Otis Elevator, tops in lifts and escalators, pulls in 24% of sales and 34% of profits; and air-conditioner and heater leader Carrier kicks in 29% of sales and 20% of profits. Fitzpatrick sees a continued rise in aerospace and solid gains at Otis and Carrier. Also high on UT is Steve Binder of Bear Stearns (BSC ) -- which has done banking for UT -- who rates it "outperform." He sees profits of $3.11 a share in 2005 and $3.50 in 2006, up from $2.65 in 2004. The best barometer of the health of UT's core businesses is free cash flow: $906 million in the third quarter vs. $741 million a year ago, says Binder.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial