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Thursday, 07/03/2003

Admirable Aerospace
By Nich Sheldon
UTX - United Technologies Corporation

Company Description

UTC is a global technology corporation with a long history of pioneering innovation in aerospace, aviation, helicopter design, climate control, elevator design and hydrogen fuel cells. All of UTC's businesses have access to each other's ideas and technologies, which promotes technological creativity throughout the corporation and helps explain how we always seem to do next things first.

As well as long-term commercial success, UTC also sees the environment as a priority.

We are steadily reducing our impact on the environment with cleaner industrial processes, while continuously improving energy efficiency both in our products and in the way we build them.

[Source: Company Website]

Reasons to Invest:

When it comes to finding companies that offer dividend reinvestment plans, one may come to find out that it is not that difficult. The fact is, numerous companies do offer drips and because of this narrowing down the search of which companies look like top prospects for profits - as opposed to say just randomly picking a ticker that sounds interesting - can be very time consuming and tedious. We here at spend monotonous hours researching the ticks that look like they have the most potential for a bullish move. Of course as many traders know - whether veteran or rookie - the market is a tricky force to reckon with. After all, if Nostradamus couldn't predict a bull market from a bear market, then who are we to say that we know which direction a stock is going to move. What we try and do is research the facts, the stats, and the price action over a course of time. We always read the news (press releases) and look into what brokers are recommending for that given company. We also focus on what the sectors or industries are doing. We are more than likely not going to recommend a company that is in a sector on a long-term bearish trend. The Drip of the Week for this week is no different.

Once again we like the aerospace and defense sector (DFI.X). This sector has been in an upward trend for nearly four months now, moving more than 130 points. Traders are safe to assume that this sounds like the aerospace sector is a bit overextended but the fact is all of the sectors appear to be like this. If one was to look at the aerospace sector's chart, they might notice a trend of sideways action. Since the middle of this past March the aerospace sector has moved sideways for about two weeks, then had a slight drop, which was followed by an impressive gap up. Then again, two weeks of sideways action, slight drop and a gap up. Low and behold we are in the third revolution of this cycle. Because this sector is overextended, we would expect a slight sell off in the near future, dropping aerospace stocks a little and giving bulls time to take profits. This gives traders a chance to buy in at a lower cost and hopefully catch the gap up.

Among the many companies that are listed in the aerospace and defense sector is United Technologies Corporation (NYSE:UTX). Based on their market capitalization ($33.6B) this is the number one company in the aerospace sector. United Technologies Corp has four operating segments: Carrier - heating, ventilating and air conditioning systems, Flight Systems - helicopters electrical systems, Otis - elevators and escalators, Pratt and Whitney - aircraft engines and space propulsion. UTX's first quarter results were impressive to say the least. Revenues rose 5% to $6.7 billion and net income applicable to common rose 8% to $494 million. These results were said to be a reflection of high revenue growth at Otis as well as higher military aerospace revenues and improved margins.

On June 18th United Technologies hit a new 52-week high of $74.07. This is good news considering that they are set to announce earnings July 17th. The company is estimating earnings of 1.23 for the second quarter. Keep in mind their first quarter estimate was 0.97, which they beat with actual earnings reading 1.00. The surprise percentage of beating earnings in the first quarter was 3.1%. Traders should also note that UTX has beat earnings estimates for the last four quarters and after reaching their new 52-week high last month, they could be in to beat earnings this quarter as well. UTX expects a 4.1% earning growth next quarter. When you compare this to the expected earnings growth of the industry (-12.1%) one cannot help but see UTX in the aerospace and defense industry's limelight.

DRIP investors should also note that on September 10th, 2003 United Technologies is set for a dividend payment of $0.27. UTX's annual dividend is $1.08 and the company currently yields a 1.50% dividend to its shareholders.

In respects to growth rate estimates UTX expects sales percentages to increase to 1.13 over the next year, 5.35 over the next three years and 5.79 over the next 5 years. EPS percentages are 15.41 over the next year and 38.87 over the next three years. Dividend percentages are expected to be at 8.89 over the next year, 8.84 over the next three years and 9.59 over the next five years. This dividend increase over the five-year period is something that DRIP investors should take into consideration. If the dividend percentage increases so do profits, especially for those that are invested in the company's dividend.

In the News

Perhaps the biggest news for UTX is that the Federal Trade Commission sees no antitrust problems with United Technologies Corp.'s plan to buy Chubb PLC. Wednesday July 2nd, the commission said that they have not found any problems with the deal as it was structured and has cleared UTX of the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act.

United Technologies Corporation announced on June 26th, 2003, that they have signed an agreement with Hyundai to jointly develop a new automotive fuel cell power plant capable of operation in freezing conditions. This is one of the main problems with fuel cell operated automobiles and should prove to be an excellent and innovative advancement in the automobile industry. These vehicles should be ready to lease by fleet operators in 2004.

UTX also announced on June 18th, that its Otis segment has acquired a contract to install 111 elevators and escalators in Asia's largest mall. The mall is being built in Guangzhou, which is in the commercial hub of South China. This mall soon to be known as Grand View Mall will be the largest mall in Asia catering to shopping, residential areas, offices and entertainment. This contract is huge for UTX's profit margin as it guarantees work for Otis for quite some time to come.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy:      6
Buy:             6
Hold:           10
Sell:            0
Strong Sell:     0

DRIP Information:

Shares to Qualify = 10
Auto-reinvestment = No
Accept Foreign Accounts: Yes
Temper Enrollment:  Yes

Min/Max Investment = $100 to $120,000/year

Reinvestment Fees - 

Dividend investment fees: None
Cash investment fees: None
Auto reinvestment fees: None Available

Transfer Agent:

First Chicago Trust

Corporate Headquarters:

United Technologies Building
One Financial Plaza
Hartford, CT 06103 
Phone: (860) 728-7000
Fax:   (860) 728-7028


Copyright 2003

Do not duplicate or redistribute in any form.
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