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United Technologies:
Good Total Return Story

In a recent issue of Market Focus, Value Line’s open-access newsletter providing unbiased insights on investments, the markets and the global economy, Ian Gendler recommends that subscribers take a look at United Technologies (UTX).

“The Connecticut-headquartered corporation is a multinational conglomerate that designs and manufactures a wide variety of products for the aerospace/defense and industrial markets. Popular product lines include Pratt & Whitney and Otis. United Tech. has 205,000 employees and a market capitalization that exceeds $100 billion. It has been a component of the Dow Jones Industrial Average since 1939.

United Technologies shares have been moving in choppy fashion of late on management bringing up the topic of a breakup. CEO Gregory Hayes, who initially seemed to be against such a move, appears to have weakened his stance and is more included to consider some options. The considerable Rockwell Collins acquisition, coupled with the sizable benefit of tax relief, head the list of reasons why leadership could be more apt to separate its various segments. It is too early to tell whether a breakup is in the cards, but activist investors have purchased shares in the hopes that some value is created.

In the meantime, earnings are expected to ramp up in the next few years (assuming the current portfolio remains intact). Benefits from the Tax Cuts and Jobs Act and the favorable impact of adding Rockwell Collins should push share profits past the $7.00 mark this year, and then to $7.75 in 2019.

As for the stock, in our view, it would make a fine addition to most equity portfolios. Worthwhile appreciation potential to the 2021-2023 time frame, along with an above-average dividend yield, combine for a good total return story regardless of whether break-up talk is followed by definitive actions.”

Editor’s Note: Ian Gendler, is Executive Director, Value Line Research, 551 Fifth Ave., FL 3, New York, NY 10176.

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