Penn Wealth Publishing

2016.01.10 Journal of Wealth & Success Vol 4 Issue 1.1

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8 wealth & success volume 4 issue 1 January 10, 2016 wealth & success Copyright 2016. All Rights Reserved. investment intelligence investment intelligence United Technologies Aerospace & Defense The content of this report reflects the personal views, opinions, and recommendations of the individuals at Penn Wealth Publishing. While measures are taken to help assure the accu- racy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. Unless you are betting on a big aerospace downturn or major economic slowdown, it is time to add UTX to the mix We must admit to being a bit perplexed this past March when mammoth holding com- pany United Technologies UTX announced that it was selling its famed Sikorsky helicop- ter unit to Lockheed Martin LMT for $9 billion in cash. After all, wasn't this the unit that created (with some help from Boeing) the modified and stealthy UH-60 Black Hawks that helped send Bin Laden to his watery grave? The more we delved into the details, however, the more it appeared to be a gutsy— and correct—strategic move. United's challenge with Sikorsky wasn't its profitability; it was its reliance on one fickle, unpredictable, dic- tatorial customer for its existence —the US Government. While UTX is a holding com- pany that specializes in making and ser- vicing components for various industries, Sikorsky is a platform company that spe- cializes in making enormous (and enor- mously expensive) systems for the military. It took bold leadership to sell the division, but it frees up the company to focus more atten- tion on its key growth drivers. Managers like GE's Jeffrey Immelt might have been comfort- able hanging on to a profitable unit, but true leaders know when to cut the strings. The $9 billion windfall ($6 billion after taxes) from the sale can be put to use strengthening the firm's commercial aviation business. Four unique, but complimentary, units It's not as if UTX gave up the store with the sale. After all, it still owns the Pratt & Whitney jet engine manufacturer, the Otis Elevator Company, UTC Climate Controls (which includes Carrier), and UTC Aerospace Systems. These four divisions are beautifully balanced, with each contributing about one-quarter to the company's bottom line (see doughnut chart to the left). After spending two decades and $10 bil- lion on the development of its new Geared Turbofan™ engine family (see shaded box), the Pratt & Whitney division is poised to reap the rewards of its innovation—it has already secured over 6,000 orders. Meanwhile, the Carrier group should be able to take advan- tage of any improvements in the commercial construction cycle. The same holds true for Otis, which installed the world's first elevator in 1853. As one could imagine, the aftermar- ket upkeep and servicing business for office elevators can be very lucrative for a firm. 25-year UTX veteran and former CFO Greg Hayes took the helm as CEO in November of 2014. Thus far, he has been decisive in his role, ordering a sweeping review of the company's operations, and selling the Sikorsky unit. We have placed UTX in the Penn Global Leaders Club, purchasing at an opening price of $94.50 per share and with an initial target price of $125, though we anticipate the com- pany will be a long-term holding. The PurePower Pw100G enGine Pratt & Whitney's PurePower® PW1000G engine family is the result of 20 years of research and development by the com- pany. The futuristic engines use Geared Turbofan™ technology which greatly reduces fuel burn, emissions, engine noice, and operating costs. A state of the art gear system separates the engine fan from the turbine, allowing each to operate at maximum efficiency. This increased efficiency also allows for fewer engine stages and components. The PW1000G was recognized in Popular Science magazine with a "Best of What's New" award.

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