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United Technologies Hits 52-Week High: What's Driving It?

Shares of industrial goods manufacturer United Technologies Corporation UTX scaled a new 52-week high of $123.15 yesterday, before closing the trading session a tad lower at $122.08 for a healthy year-to-date return of 12.6%. Barring minor hiccups, United Technologies’ share price has steadily been on an uptrend since mid-April.

Despite its strong price appreciation, this Zacks Rank #2 (Buy) stock has the wherewithal to continue its upward trend with long-term earnings growth expectation of 8.5%.

Growth Drivers

United Technologies serves various end markets such as aerospace, defense and commercial construction, that move according to their own cycles. This business mix and diversification allow the company to remain profitable even during tough economic times, delivering consistent earnings and dividend growth.

In addition, United Technologies has a strong aftermarket business. The company not only manufactures and sells primary products such as elevators, aircraft engines and helicopters but also sells spare parts and offers related services to keep those primary products running. The company’s aftermarket services business is relatively stable compared to new product delivery. It further helps offset the negative impact of downturns in the new products market. With a diligent execution of operational plans, the company has outperformed the Diversified Operations industry with an average year-to-date return of 11.3% compared with just 2.2% gain for the latter.

United Technologies is also revamping its aerospace unit. This includes 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. In addition, the company expects that the strategic moves will further ensure a successful entry and production ramp-up of its Geared Turbofan engines to thwart intense competition from other players in the market.

Incorporating its improved expectations for organic sales growth in the near future, management has further affirmed its guidance for 2017. The company expects adjusted earnings in the range of $6.30–$6.60 per share on revenues of $57.5–$59 billion. The company’s acquisition pool is expected to be within $1–$2 billion, while free cash flow is expected in the range of 90–100% of net income. It also plans to repurchase shares worth $3.5 billion in 2017. Despite a challenging macroeconomic environment and continued investments in the aerospace segment, the company expects to generate significant cash from operations to reward shareholders with risk-adjusted returns. This represents improving business conditions and strong operating fundamentals of the company.

All these measures for a healthy near-term growth probably raised investor confidence and drove the shares to a 52-week high.

Other Stocks to Consider

Other noteworthy stocks in the industry include 3M Company MMM, Barloworld Limited BRRAY and Honeywell International Inc. HON, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3M has a long-term earnings growth expectation of 9.7%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 1.3%.

Barloworld has a long-term earnings growth expectation of 17.2%.

Honeywell has a long-term earnings growth expectation of 9.3%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 2.0%.

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