United Technologies Earnings Preview: First Quarter 2009

United Technologies [[UTX]] is scheduled to report first quarter 2009 results before the market opens on Tuesday, April 21. Based on our analysis, we are expecting UTX to report slightly better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $12.31 billion and EPS of $.80. This would represent a 10% decline in revenues from last year’s $13.70 billion in the same period. The current analyst consensus estimates calls for revenues of $12.41 billion and $.78 EPS. On March 10, the company provided revised full year 2009 revenue guidance of $55 billion and EPS of $4.00 – $4.50.


Management’s decision last month to revise downward their full year guidance reflects the strong economic headwinds that are continuing in 2009. The company stated, “the outlook for commercial aerospace and global construction markets has continued to deteriorate since UTC’s December investor meeting and the economic recovery previously anticipated in the second half of 2009 now appears unlikely.”


Despite the economic challenges, United Technologies management appears to be making the difficult, but necessary moves to adjust to the current environment. They have implemented cost saving measures (including reducing their workforce by 18,000) that are expected to generate savings in excess of $1 billion this year. They are also planning on repurchasing $1 billion in company stock. While this is a reduction of their original plan to repurchase $2 billion worth of stock, we feel that any level of share repurchases in this environment should be viewed positively.


Share Performance

United Technologies shares are down 12% since the beginning of the year. In 2008, UTX’s shares fell only 30%, which slightly outperformed the 34% decline in the Dow Jones index.



Shares are now trading at 10x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. While it’s clear that United Technologies faces some severe economic headwinds, we believe they are positioning themselves to ride out this storm and possibly grow earnings in 2010.


Recommendation: Buy with a $52 price target.


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