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Stock Strategist

United Technologies Poised for Growth

The sale of the helicopter business has cleared the company for takeoff.

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With the $9 billion sale of Sikorsky in the books,  United Technologies (UTX) is poised for growth as secular tailwinds support longer-term expansion in its four remaining operating segments. In selling the helicopter platform, United Technologies streamlined its aerospace business by reducing exposure to a difficult military market and focusing resources on enhancing the efficiency of a component-focused portfolio that derives nearly 75% of sales from a commercial aerospace market enjoying a cyclical upswing.

After nearly 20 years and $10 billion of development, Pratt & Whitney will ramp production of its innovative geared turbofan engine, for which it has secured more than 6,000 orders. Through 2020, Pratt's earnings will be pressured as the mix shifts from legacy engines and services toward the GTF, which records a negative margin at delivery. However, this new installed base will secure a long runway of lucrative aftermarket services that will plump segment cash flows for decades. With the acquisitions of Hamilton Sundstrand and Goodrich, UTC Aerospace Systems quadrupled the value of its content per plane from an average $800,000 in 2000 to $3.2 million today. Industry forecasts suggest that the number of aircraft in service could double by 2030 as growth in revenue passenger miles continues to climb. We expect that Pratt's return to the narrow-body market and UTAS' nose-to-tail systems will take advantage of this trajectory.

Barbara Noverini does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.