In this commentary, I will examine United Technologies Corporation’s (NYSE:UTX) latest earnings update (30 June 2018) and compare these figures against its performance over the past couple of years, as well as how the rest of the aerospace & defense industry performed. As an investor, I find it beneficial to assess UTX’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
How Did UTX’s Recent Performance Stack Up Against Its Past?UTX’s trailing twelve-month earnings (from 30 June 2018) of US$5.07b has declined by -4.16% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -1.29%, indicating the rate at which UTX is growing has slowed down. Why is this? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat.
Revenue growth in the last few years, has been positive, yet earnings growth has been declining. This means United Technologies has been ramping up expenses, which is harming margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US aerospace & defense industry has been growing, albeit, at a unexciting single-digit rate of 7.02% in the previous year, and 3.75% over the past five. This growth is a median of profitable companies of 24 Aerospace & Defense companies in US including Butler National, Aerojet Rocketdyne Holdings and Leonardo. This means that whatever uplift the industry is benefiting from, United Technologies has not been able to leverage it as much as its average peer.In terms of returns from investment, United Technologies has fallen short of achieving a 20% return on equity (ROE), recording 16.21% instead. Furthermore, its return on assets (ROA) of 5.91% is below the US Aerospace & Defense industry of 5.95%, indicating United Technologies’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for United Technologies’s debt level, has declined over the past 3 years from 12.39% to 9.72%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 75.81% to 84.57% over the past 5 years.
What does this mean?
Though United Technologies’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. You should continue to research United Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for UTX’s future growth? Take a look at our free research report of analyst consensus for UTX’s outlook.
- Financial Health: Are UTX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.