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United Technologies Aims to Rebound through Restructuring

On Oct 5, Zacks Investment Research updated the research report on diversified conglomerate United Technologies CorporationUTX .

United Technologies serves various end-markets such as aerospace, defense and commercial construction, which move according to their own cycles. This business mix and diversification allows the company to remain profitable even during tough economic times, delivering consistent earnings and dividend growth. The company also has an experienced management team that is likely to capitalize on the continued global economic recovery and deliver sustainable earnings growth in the future.

At the same time, the company is restructuring its portfolio to focus on the core businesses. These included an overhaul of its organizational structure in the aerospace business along with some key changes in the leadership positions within it. United Technologies anticipates that the streamlined organizational set-up would enable it to better serve its customers. The strategic move is also expected to ensure a successful entry and production ramp-up of its Geared Turbofan engines to thwart intense competition from peers like General Electric Company GE , Honeywell International Inc. HON and Rolls Royce.

United Technologies has also reached an agreement to sell its Sikorsky Aircraft business to Lockheed Martin Corp. LMT for $9 billion in cash, which is subject to regulatory approvals. This transaction is expected to close by the year end or in the first quarter of 2016. Exiting the helicopter business will help United Technologies to focus on providing high-technology systems and services to the aerospace and building industries and deliver improved and sustained value to its customers.

However, the financial performance of the company depends on the conditions of the construction and aerospace industries. United Technologies is also heavily dependent on the U.S. government's budgetary allocation for defense. A reduction in capital spending for the commercial aviation or defense industries could have a significant effect on demand for its products, which could in turn have an adverse impact on its financial performance. The introduction of new products and technologies further involves risks, and the degree or timing of benefits may not be correctly anticipated. Consequently, this Zacks Rank #4 (Sell) seems to be facing challenges on most fronts at present, and it would be prudent of investors to remain on the sidelines for some time.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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