Industry Aerospace/Defense (AEROD). Carrier can be grouped in

Industry Aerospace/Defense (AEROD). Carrier can be grouped in

Industry Classification United Technologies Corporation (UTX) has 5 different major segments. These five segments can be broken down into three major industries. Pratt & Whitney, Hamilton Sundstrand, and Sikorsky Helicopters can be classified as Aerospace/Defense (AEROD). Carrier can be grouped in the Heating & Air Conditioning Equipment Manufacturing Industry (HVAC). The Otis segment belongs to the Elevator, Millwright & Machine Rigging Contractors Industry.

The company as a whole can be classified as a conglomerate; however, analyzing the Conglomerate Industry as a whole would not be beneficial for valuation.United Technologies as a company is 42% Aerospace/Defense products, therefore that industry will represent a majority of the report. UTX as a whole displays cyclical behavior. 1. Aerospace/Defense The Aerospace/Defense Industry is in the decline stage of their life cycle. There are several contributing factors for this assumption. Industry value added for aerospace/defense has been on the decline for the past several years.

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Additionally, military spending is expected to decline in the following years as well. Product development has also slowed in recent years. A majority of new products are upgrades from older products.Companies in this industry have also been shifting production to countries outside the U.

S. for cheaper manufacturing costs. Cost competition is causing smaller firms to be forced out of the industry and contributing to the overall decline of the industry. Aerospace/Defense displays a defensive behavior. However, at a time of war the industry is independent of gross economic behavior. 2.

Heating & Air Conditioning Equipment Manufacturing (HVAC) HVAC as an industry is in the growth stage of their life cycle. Although the products within the industry are not new, they are now viewed as necessities of construction.Improving technology and global manufacturing is making the industry more technical in nature compared to the past. Major growth in this industry is dependent on growth in the overall construction industry. The HVAC industry displays cyclical behavior. 3. Elevator, Millwright & Machine Rigging Contractors (EMMRC) The Elevator, Millwright & Machine Rigging Contractors Industry is in the mature stage of their life cycle.

Industry growth is consistent with overall growth of the economy. The Elevator, Millwright & Machine Rigging Contractors Industry displays cyclical behavior.External Factors 1. Technology a. Aerospace/Defense The Aerospace/Defense Industry relies heavily upon increasing technology. Advances in technology in this industry have a direct impact on safety, performance, quality, cost, and competitive advantage. All of these are crucial for success in the industry.

New technologies are constantly being introduced to the industry. Research and development expenditures amount to 3% of industry revenues. These discovered technologies are normally applied to current products and are not usually completely new products by themselves.The industries players must constantly expand their technologies to remain viable in the industry; however, they do not face a major threat from completely undeveloped technologies. b.

HVAC Technology advances in the industry are high. The HVAC Industry faces heavy competition directly influenced by increasing technologies. Mainly, climate control systems and improvements in remote control of HVAC systems are the primary increasing technologies. c. EMMRC Elevators, escalators, and people movers are not directly threatened by advanced technologies.Overall, the industry faces average increases in technology.

These improvements primarily affect installation and diagnostics of current systems. The producers of elevators and escalators don’t face much threat from new technologies, but advancing technologies in the future may decrease installation and maintenance costs. In the industry most producers are also installers and maintainers of the equipment. 2.

Government d. Aerospace/Defense The government assists the industry be means of tax incentives, grants, and subsidies. However, Aerospace/Defense is heavily regulated by the government.These regulations include strict safety requirements, pollution regulations, defense contracting, and noise control regulations. Recent laws have established a regulation on the decibel level for commercial airplanes. Also, some governments are instilling fuel consumption guidelines for aircraft. Regulations like these can impact the industry in several different ways.

e. HVAC There are no special taxes or incentives relating to this industry. Federal and State & Local Governments heavily regulate the operating procedures of industry participants.These regulations are mainly mandates on licensing, certifications, and safety precautions for employees in the industry. The EPA heavily regulates the industry with regards to refrigerant disposal procedures.

f. EMMRC There are no special taxes or incentives relating to this industry. Federal and State & Local Governments heavily regulate the operating procedures of industry participants. These regulations are mainly mandates on licensing, certifications, and safety precautions for employees in the industry. 3.

Foreign Influences g. Aerospace/Defense The industry recognizes globalization as an opportunity.Increasing demand in new and emerging markets as well as a place to relocate for less costly production costs is a possibility. The defense segment of the industry is recognizing a decline in demand from the U. S. government and will likely increase global sales to ally countries.

Foreign governments may offer significant tax incentives in exchange for services in the future. h. HVAC Globalization of U.

S. companies is not a significant portion of the industry’s business activities. International activity accounts for less than 5% of the industry’s revenue. There is no reason to expect any significant increase in foreign activity. . EMMRC This industry does not face much foreign interference. Globalization activity accounts for less than 10% of industry revenue.

Industry participants, like all companies, face the possibility of mergers and acquisitions; however, international activity in this industry is expected to remain low. Demand Analysis a. Aerospace/Defense Demand in the aerospace/defense industry is stimulated by economic prosperity, aging aircraft, and foreign policy decisions. Increases in consumer airline travel may increase the demand for an expanded fleet or larger aircraft.Normally, increases in airline activity coincide with a prosperous economy. Wars in Iraq and Afghanistan also increase the demand for military aircraft from the government. Decisions about the appropriate course of action in these countries will definitely impact the demand for products.

b. HVAC The HVAC industry faces increases in demand during periods of economic prosperity and forecasts of prosperity. Increases in non-residential building are usually indicators of a healthy economy. Optimistic forecasts in the near future may cause an increase in demand for the HVAC industry.

Geographic location also derives demand for the industry. In regions of cold and heat, the services of the HVAC industry are demanded, and often times viewed as a necessity. c. EMMRC Demand for the elevators, escalators, and people movers is created by investment in new buildings.

60% of the industry’s revenues are from new building construction. Thus, a healthy economy creates a higher demand for the services. The remaining demand in the industry is for repair of existing products in the market place. Routine maintenance and aging products are the root cause for demand for this remaining portion. Supply Analysis .

Aerospace/Defense Aerospace/Defense industry has a number of suppliers. Some of these companies include; metal, computer technology, engine, electrical, and many others. There isn’t any significant power held by these suppliers over the company. However, the industry is vulnerable to increases in oil and metal prices. Costs of materials account for 46.

8% of industry revenues. An expectation for higher commodity prices can shrink the industries profit margin further. b. HVAC Some major suppliers for the industry are wholesalers, refrigeration companies, electrical contractors, and construction equipment.

Long term mutual relationships between producers and suppliers have kept costs steady. c. EMMRC Suppliers for the EMMRC Industry include construction materials, lubricants, and fuels. There is no major power of suppliers over producers in this industry.

Profitability a. Aerospace/Defense The Aerospace/Defense industry has a low profit margin at 2. 8%. The commercial airline segment demands higher profits than the defense contracts these companies obtain. Exhibit P1 on the next page displays the cost structure for the Aerospace/Defense Industry. As you can see material purchases make up nearly half of all industry revenues.

Exhibit P1 b. HVAC Operating profits amount to approximately 22% of Industry Revenue in the HVAC industry. However, operating margins have decreased in unison with the economy over the past 5 years. Exhibit P2 displays the cost structure for the HVAC Industry.

Labor costs make up a large portion of the industry’s total revenue. Exhibit P2 c. EMMRC The elevator, escalator, and people mover industry has a high profit margin at 27%. Exhibit P3 on the next page displays the cost structure for the EMMRC Industry. Purchases and wages make up a very large portion of this industry’s total revenue usage.Exhibit P3 International Competition & Markets a. Aerospace/Defense U.

S. companies represent a majority of the industry, but Airbus from Europe is a strong competitor. France, Canada, and the UK are the three most significant international competitors. International markets such as China and India are likely to become new and emerging markets of opportunity in the future. China has already placed an order for 650 single aisle planes for 2010.

b. HVAC International competition is not a viable threat. International markets are most likely not going to attract much attention from the U.S.

HVAC industry. c. EMMRC Global competition is not a significant threat to U. S. HVAC companies. Porter’s 5 Forces a. Aerospace/Defense * Threat of new entrants * There are incredibly high economies of scale in this industry as well as a mandatory highly skilled labor force.

There is a very low threat of new entrants. * Power of suppliers * There is no significant threat from powerful suppliers in this industry; however, the rising cost of commodities can erase profit margins. * Power of buyers * The commercial aerospace industry faces limited buying power due to lack of alternatives.The defense segment of the industry faces strict price competition because contracts are primarily awarded to the company with the best price.

* Availability of Substitutes * In totality, there are no substitutes for the products provided by companies in this industry. In the consumer portion of the airline industry consumers can substitute air travel with driving or trains which in turn would reduce the demand from airlines for new fleets and larger aircraft. This would most likely result from a poor economy. The defense segment does not have a viable substitute. * Competition The industry is comprised of a handful of dominate firms. These firms create highly specialized and customized products. This dominance and specialization causes competition to be relatively mild.

Exhibit C1 displays the major players in the Aerospace/Defense Industry. Exhibit C1 Market Share 2009 b. HVAC * Threat of new entrants * The barriers to entry in this industry are about average. Economies of scale and reputation of existing firms make entering the industry on a large scale relatively difficult. * Power of Suppliers * Suppliers in this industry are often times vertically integrated.

* Power of Buyers Buyers have multiple products to choose from giving them some buying power. * Availability of Substitutes * Overall, there are no real substitutes to HVAC. * Competition * There is competition within the industry.

Reputation and referrals keep quality names in demand. c. EMMRC * Threat of new entrants * There is a low threat of new entrants in the industry on a large manufacturing scale. * Power of Suppliers * Major companies like UTX are vertically integrated for the most part.

Power of suppliers is not a threat to the major players in the industry. * Power of Buyers * Buyers of the materials have average power.There are a limited amount of high quality products to choose from.

However, there are quite a few installation companies to choose from. * Availability of Substitutes * Companies in need of elevators and escalators most likely do not have any close substitutes to choose from other than stairs. * Competition * There is a high amount of competition in the industry with a large quantity of suppliers involved in the industry. Exhibit C3 on the next page displays the major players in the EMMRC Industry. Exhibit C3 Market Share 2009 Company Analysis General Information Overview and Business DescriptionUnited Technology Corporation has six diversified business segments. These segments include: Pratt & Whitney aircraft engines; Carrier heating, ventilating and air conditioning (HVAC) equipment; Otis elevators and escalators; UTC Fire & Security surveillance and fire monitor systems; Sikorsky helicopters; and Hamilton Sundstrand aerospace and industrial systems. Combining these various segments make United Technologies a conglomerate representing various industries.

Represented industries include: Aerospace/Defense; Heating, ventilating and air conditioning (HVAC); Elevator and people mover industry.Otis, Carrier, and UTC Fire & Security are often called United Technologies “commercial businesses. ” On the other hand, Pratt & Whitney, Hamilton Sundstrand, and Sikorsky Helicopters are referred to as the “aerospace businesses. ” Corporate Strategy Management’s principal strategy focuses heavily on balance throughout the company. United Technology’s diverse business segments mitigate unsystematic risk for the company. The “commercial businesses” tend to have shorter revenue cycles than the “aerospace businesses” which creates a balance of revenue for the company.United Technologies also diversifies their risk by reaching global markets for 62% of the revenues.

As part of their growth strategy they explore foreign markets that are known to be volatile. Some of these countries include; Argentina, Brazil, India, China, and South Africa. United Technologies minimizes the risks borne from investing in these markets by capping investment at 4% of consolidated shareholder equity per volatile country.

Life Cycle The company, as a whole, can be categorized in the growth stage of development.Although the various segments are facing different stages in their individual life cycle, the company is pushing for growth. United Technologies invests heavily in research and development and searches for new products in all of the segments. Additionally, the company has acquired over 30 businesses in recent years and will continue to employ this strategy in the future. UTX is heavily reliant on a healthy economy and displays cyclical behavior. Financial Summary UTX struggled during 2009 as a result of the economic downturn. Earnings per share decreased 17% from 2008 to 2009.

Revenues were also down 10% for the year.United Technologies’ poor performance does not reflect the stability of the company. The down year was a direct result of a global economic recession. Most analysts expect a full recovery of these losses when the economy turns itself around. Products and Markets Product line and new products UTC Fire & Security is in the fifth year of development and has recently been involved in numerous acquisitions as well as reaching global markets with fire security systems. Sikorsky Helicopters has experienced incredible growth in recent years and has been the recipient of various government contracts for the UH-60 Blackhawk helicopter.

In January 2010 Sikorsky was awarded another government contract worth $1. 52 billion. Hamilton Sundstrand develops products for commercial aircraft systems integration. Some major aircraft include the Air Bus A350XWB and the Boeing 787 Dreamliner. Pratt & Whitney is producing the F 119 engine for the F-22 Raptor and the F-35 Joint Strike Fighter Jet. The F-22 faced various problems associated with costs and was removed from the 2010 budget.

However, the F-35 will be the global jet of choice in the coming years. Carrier produces commercial and residential heating and air conditioners.A recent innovation for the segment was the Comfort Choice consumption manager. The Comfort Choice is an online control for heating and air conditioner systems. Otis elevators, escalators, and people movers developed an innovative GEN2 elevator system in recent years. This was a major development for the industry as a whole and will continue to drive the segment. United Technologies also produces aftermarket and replacement parts for all of their major products.

These replacement parts contribute to over 40% of their total revenue. This feature of the company creates a source of income hen market demand for new products decreases. Market for the Company’s Products UTC Fire & Security is reaching out to emerging markets for developing Fire & Security solutions. Sikorsky Helicopters, Hamilton Sundstrand, and Pratt & Whitney focus on government and commercial aerospace markets. Carrier and Otis reach commercial and residential markets worldwide. Major customers include the U.

S. government, allied governments, Boeing, Lockheed Martin, and Airbus. Production and Distribution Manufacturing Process and Cost United Technologies has a record of consistent cost of goods sold.In 2008, cost of goods sold was $41. 2 billion and revenues were 58 billion. The cost of goods sold for 2009 maintained a very similar ratio, $37.

6 billion cost of goods sold and about $53 billion. Manufacturing processes vary from segment to segment, but the overall costs remain consistent. Distribution and Suppliers United Technologies demands very high standards from suppliers. The company surveys suppliers annually and stresses the importance of efficiency. In addition, they have a very low tolerance for inefficiency. United Technologies has created a program titled “Supplier Gold.

The “Gold” standard is given to suppliers who accomplish stringent efficiency standards. Benefits include recognition and considerable benefits. Suppliers for the company are also required to adhere to strict environmental regulations.

Competition Competitive Environment Pratt & Whitney faces intense competition for aerospace/defense contracts. General Electric is a primary competitor for aircraft engines. Boeing is also a major competitor for the aerospace segments.

Thysenkrupp AG is a German steel company that competes with the Otis elevator segment of United Technologies. Other TopicsResearch and Development United Technologies stresses the importance of innovation in each of their segments. Company funded R&D in 2009 was $1. 8 billion (3. 3% of total revenue), a $100 million increase from the previous year.

United Technologies describes themselves as a company of ideas nurtured by the focus on R&D. The aerospace segments of United Technologies rely heavily on R&D and sometimes a single innovation can take about 20 years. Foreign Sales and Earnings United Technologies has a massive global presence. Roughly 62% of 2009 revenues were from international transactions.As mentioned before, the company prides itself on their global reach and also attempts added growth through volatile emerging markets.

Government Regulation The most noticeable regulation challenging the corporation comes from government imposed environmental regulation. In 2009, United Technology set aside $539 million for environmental remediation. Other regulations include safety and care in relation to end user products. For example, inspection and replacement procedures for aircraft and elevator parts. Personnel United Technologies has over 220,000 employees 4,000 locations.

UTC offers employees 3 hours paid time off per week to pursue higher education. Volunteering is also encouraged, over 70,000 hours of volunteer work was performed by U. S. employees in 2008. Employees are expected to adhere to high standards of ethics. In 2008, 357 employees were fired over unethical behavior. Management Louis R. Chenevert is the Chief Executive Officer and President of United Technologies Corporation. Chenevert assumed this position on April 9, 2008. In 2008, Chenevert earned roughly $22 million in total compensation. This compensation is about $10 million higher than comparable competition.Balance Sheet (Appendix A) Total assets decreased about $1. 1 billion for the fiscal year. Accounts receivable and inventories both decreased while cash and other assets increased. Economic conditions are the root cause for the decrease in financial assets. Total Liabilities decreased approximately $5 billion for the year. Short-term liabilities decreased approximately $800 million from year-to-year primarily because United Technologies had no commercial paper outstanding as of December 31, 2009. Fiscal year 2008 Liabilities were extraordinarily high from the negative effect of market conditions on pension plans for approximately $4. billion. The market turn around in 2009 reversed these negative effects as well as other debt reductions of $1. 7 billion. Income Statement (Appendix B) Revenues declined 11% to $52. 9 billion for fiscal year 2009. Earnings per share for also declined in 2009 to $4. 12, a 16% decline from 2008. The decline in revenue is the direct result of the continued economic recession. The housing and airline markets remained stagnant in 2009 causing United Technologies much of their troubles. With the exception of the Sikorsky Helicopter segment, all of United Technologies segments produced significantly lower volumes in 2009.Adverse foreign exchange rates also negatively affected revenues in 2009. Total expenses were reduced during the year primarily by reducing the company’s workforce by aproximately 14,600 employees. Net income decreased 17% for the year. Statement of Cash Flows (Appendix C) The company maintained a healthy cash position in 2009. Although net income was drastically reduced during the year, available cash and cash equivalents for the year end were nearly $4. 5 billion. The deferred income tax provision represents a change in tax policy for the year. In the future, deferred income taxes are expected to decrease.United Technologies significantly decreased their long term debt position with payments of more than $1 billion. They also substantially decreased their short term debt as well. The company also increased dividend payments by 12% in 2009. Ratio Analysis UTC fares relatively well against the industry average for most key financial ratios. Some of these are displayed in exhibit R1 below. As you can see; the P/E, P/B, P/S, EPS growth, and ROE all outperform UTC’s respective industry. However; revenue growth, operating margin, net margin, and debt to equity ratios are below average. Exhibit R1 Profitability Ratios v.Key Competitors Some key profitability ratios we will examine here are the return on equity, return on assets, and the profit margin. Exhibit R2 displays these three ratios for; UTC, Boeing, General Electric, and the conglomerate industry. Although we will be comparing UTC with Boeing, General Electric, and the industrial conglomerate industry, there is no completely justifiable comparison for the company as a whole. United Technologies has several different business segments and the company as a whole is very unique. As you can see, UTC presented a much better ROA and profit margin compared to Boeing and GE.This is definitely a result of their cost cutting and profit maintenance for the year. Return on equity for UTC is much better than average for the conglomerate industry, but in between the two competitors. Boeing has an extremely high return on equity due to their corporate strategy, which entails substituting debt for equity. The data in exhibit R3 below displays the past 10 year profitability margins and ratios for UTC. As you can see, profitability decreased systematically throughout the company in 2009. Exhibit R2 | | Profitability Ratios| | | | UTX| BA| GE| Industry| | ROA| 8. 03%| 2. 02%| 0. 9%| xxx| | ROE| 21. 37%| 320. 14%| 10. 11%| 12. 10%| | Profit Margin| 7. 24%| 1. 92%| 7. 04%| 6. 80%| | Exhibit R3 Efficiency Ratios The next set of ratios measure how efficiently the company is managing their assets. Exhibit R3 below compares the efficiency ratios for UTC against Boeing and General Electric. The Days of Sales Outstanding ratio indicates that UTC takes twice as long to collect on sales than Boeing, but 16 days less than General Electric. Day’s inventory held (DIH) is also between the two competitors for the year. DIH indicates that Boeing ties up capital in inventory longer than UTC.Exhibit R4 Efficiency Ratios | UTX| BA| GE| TOTAL ASSET TURNOVER| 0. 9| 1. 2| 0. 2| FIXED ASSET TURNOVER| 8. 3| 7. 8| 2. 1| INVENTORY TURNOVER| 4. 9| 3. 5| 5. 9| Days of Sales Outstanding| 60. 6| 30. 4| 76. 2| Days Inventory Held| 74. 4| 105. 1| 61. 7| | | | | | | | | | | | | Exhibit R5 displays the past 10 year efficiency ratios for UTC. DSO, DIH, payables, and the cash conversion cycle all increased in 2009. This implies difficulty selling products and/or collecting payments from customers. Turnover ratios for the year all decreased for the year reflecting the increased efficiency throughout the company.This is another contributing factor to profitability in a declining revenue environment. Exhibit R5 Leverage Ratios The company’s leverage ratios in exhibit R6 display a healthy financial position for UTC. The interest coverage ratio is an important barometer of financial health and UTC appears to be financial sound with 11 times more income before taxes than interest expenses for the year. The current assets over current liabilities ratio also implies that the company has not over extended itself. Exhibit R6 Leverage Ratios | UTX| BA| GE| INDUSTRY| CURRENT RATIO| 1. 29| 1. 073| 2. 76| 1. 05| QUICK RATIO| 0. 8| 0. 56| 2. 7| 0. 73| LT DEBT TO EQUITY| 41. 15| 574. 11| 321. 54| 19. 52| TOTAL DEBT TO EQUITY| 48. 56| 607. 33| 434. 98| 40. 08| TIMES INTEREST EARNED| 11. 07| 6. 12| 1. 55| NA| Dividend Ratios UTC distributed a commendable 2. 39% dividend yield in 2009. This dividend has constantly increased over the past years at a 17% 5 year growth rate. Exhibit R7 displays the dividend yield and growth rates as well as the payout ratio. Exhibit R7 Pro Forma Statements The Pro Forma income statement and balance sheet below incorporate long-term future revenue growth expectations of 12% through the year 2015.Pro Forma Income Statement Pro Forma Balance Sheet Valuation United Tech’s diverse business model makes it incredibly difficult to compare with other companies. In fact, it would be impossible to find a company that competes with them in more than 2 of their six different business units. This lack of comparative material leads me to rely more heavily on the single company valuation model. Dividend Discount Model United Tech has grown their dividend per share approximately 15% each year over the past 5 years and, because of this, we will first administer the dividend discount model.The Security Market Line Equation (exhibit V1) was calculated first using a 3. 88% Risk Free Rate (10 Year Treasury). United Tech’s beta is . 95 according to baseline and the market-risk premium is 7% (7% is average consensus among various internet sources). The SML’s required rate of return is 10. 53%. Using the dividend discount model we assume a 15% constant dividend growth rate. I chose the 15% constant growth rate assuming the company will continue with the 15% annual dividend growth. Value Line projects the stock price to be between $98 and $120 per share in the next 5 years; however, I will use the average of their range ($109).I believe the past performance of the company and the strong financial health makes this a very reasonable future price. The dividend discount model (exhibit V1) estimates the current value per share to be approximately $75 per share. United Tech is currently trading for approximately $75 per share and, according to the model, is very near being fairly valued. Exhibit V1 Security Market Line Required Rate= Risk Free Rate + (Stock’s Beta *(Market Return-Risk Free Rate)) Required Rate = 3. 88% + ((. 95) (7%)) = 10. 53% Dividend Discount Model d0= $1. 54 | $1. 54 | d1= $1. 54 (1. 15)| $1. 77 | d2= $1. 77 (1. 15)| $2. 4 | d3= $2. 04 (1. 15)| $2. 34 | d4= $2. 34 (1. 15)| $2. 69 | d5= $2. 69 (1. 15)| $3. 10 | =1. 771. 1053+2. 041. 10532+2. 341. 10533+2. 691. 10534+3. 101. 10535=8. 69% Current Price=P51+r5+Discounted Dividends Current Price=$1091. 10535+8. 69%=$74. 76 P/E Method The P/E valuation method delivers results that imply United Technologies is attractively valued. Comparing the company side-by-side to General Electric allows us to easily recognize some key differences. United Tech appears to be less risky and also outperforms GE in every category displayed in exhibit v2 except for dividend yield and payout ratio.Various sources forecast the company to have between an 8% and 12% long-term future growth-rate. I find myself in agreement with the more aggressive estimates and used an 11. 2% future growth-rate. Using the 5 year average P/E ratio (18) and an expected future EPS of $6. 75, I forecast the stock to be approximately $121 per share in 5 years. The $121 future price per share is also in agreement with Value Line’s 5 year future price. Exhibit V2 | UTX| GE| S&P| Return on Equity| 21. 30%| 9. 07%| 19. 00%| Beta| 0. 95| 1. 21| 1| 5 Year Growth In Sales| 8. 00%| 2%| N/A| Payout Ratio| 32%| 54%| N/A| Year Average P/E Ratio| 16. 1| 16. 8| N/A| Trailing P/E Ratio| 18. 2| 18| 19. 6| 2009 EPS| $4. 12 | $1. 01 | $4. 40 | Dividend Yield| 2. 10%| 2. 16%| 1. 80%| Long Term Future Growth Rate| 11. 20%| 7. 60%| 10. 60%| | My Estimate| |  | 5 Year Forward P/E| 18| |  | 5 Year Estimated EPS| $6. 75 |  |  | | | | | Estimated 5 Year Stock Value| $121. 50| | | Current Price| $74. 67| | | Valuepro. net Valuation I have also included a discounted cash flow to the firm (DCFF) valuation provided by Valuepro. net. The previously forecasted 11. 2% expected future growth-rate and a 7% equity risk premium were also used in this model.Exhibit V3 indicates that the stock is considered to be presently worth approximately $79 per share. The stock is currently trading for $74. 67 and, according to this model, is currently undervalued by 5. 8%. Exhibit V3 Recommendation The company is very well diversified and maintains a healthy balance sheet. Continued growth is very likely with several well known brands and 62% of revenues coming from overseas. Although the dividend discount model does not indicate the stock to be undervalued (fairly valued), the DCFF method indicates the stock is currently undervalued by approximately 5. 8%.Additionally, the P/E model projects a future price of $121 per share. Using the models as a guide and taking the healthy 2. 1% dividend yield and expected future dividend growth-rate of 15% per year into consideration, I recommend a buy for United Technologies Corporation. ——————————————– 1 . IBIS World 2 . IBIS World 3 . IBIS World 4 . IBIS World 5 . IBIS Global 6 . IBIS Global 7 . IBIS World 8 . IBIS World 9 . IBIS Global 10 . IBIS World 11 . IBIS World 12 . UTC annual report 2008 13 . UTC Annual Report 14 . UTC Annual Report

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