Option Trade
United Technologies Corporation (NYSE:UTX) Calls 
Tuesday, January 24, 2017

** OPTION TRADE: Buy the UTX MAY 19 2017 115.000 call at approximately $1.90. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

by Ian Harvey

Tuesday, January 24, 2017

Defense contractor, United Technologies Corporation (NYSE:UTX) is expected to report its fourth-quarter numbers on January 25 before the market open. Analysts expect to see earnings of $1.56 per share, up from $1.53 during the same period last year.

In the last reported quarter, the company comfortably beat the Consensus Estimate by 8 cents. On a trailing four-quarter basis, United Technologies boasts an average positive earnings surprise of 5.54%, beating estimates on every occasion.

There is a lot of optimism surrounding the defense sector at this time. President Trump promises to build all branches of the military, which is the primary reason why shares in defense contractors like United Technologies have soared since the election.

Even though the consensus calls for earnings of $1.56 per share, the street has a slightly higher whisper number of $1.60, indicating strong optimism in the company’s underlying business. UTX has a good earnings record, having topped analyst estimates for seven straight quarters, and another earnings beat is looking likely which will push the stock higher towards a new 52-week high.

The stock price has rallied 8.79% in the past 12 Weeks, and the price continues to stay positive. The stock price is up at 28.3% over the past year.

United Technologies Corp. has a market capitalization of $91.23 billion, a price-to-earnings ratio of 12.66 and a beta of 1.11. The company’s 50-day moving average is $109.82 and its 200-day moving average is $105.62. United Technologies Corp. has a 52-week low of $83.39 and a 52-week high of $112.83.

Factors to Consider

During the quarter, United Technologies' subsidiary Pratt & Whitney secured the joint Type Certification from the Federal Aviation Administration and the European Aviation Safety Agency for its PurePower Geared Turbofan engine in Airbus A321neo aircraft. The two companies have worked together for the past six years, and this certification helps strengthen their ties further. This also helps augment the company’s goodwill and boost its top-line in the upcoming quarter results.

In addition, the company entered into a deal with a popular low-cost Mexican airline company, VivaAerobus. Per the new pact, Pratt & Whitney’s PurePower Geared Turbofan Engine has been used in VivaAerobus’ aircraft A320neo. A320neo made its first passenger flight on Oct 18, 2016 from Monterrey to Guadalajara, Mexico. Pratt & Whitney has secured more than 8,400 Geared Turbofan Engine orders from almost 80 end-users, located across all its business hubs. This product would likely boost United Technologies’ revenues in the to-be-reported quarter.

During the quarter, the company continued to secure various deals across all of its segments which will have a positive impact on its revenues.

On Dec 14, United Technologies reiterated its earlier view for 2016. The company also provided an initial guidance for 2017 based on current business scenario and market expectations. For 2016, the company continues to expect adjusted earnings in the range of $6.55–$6.60 per share on revenues of $57–$58 billion. This represents organic sales growth of 2–3% on a year-over-year basis. The company reaffirmed its acquisition expectations of $1–$2 billion and free cash flow guidance in the range of 90–100%. It also plans to repurchase shares worth $3 billion in 2016. United Technologies stated that its plan to return $22 billion in cash to shareholders from 2015 through 2017 remains on track.

Hedge Fund Participation

 A number of hedge funds and other institutional investors have made changes to their positions in United Technologies.....

  • Paragon Capital Management LLC boosted its stake in shares of United Technologies Corp. by 19.7% in the second quarter. Paragon Capital Management LLC now owns 2,393 shares of the company’s stock worth $245,000 after buying an additional 393 shares in the last quarter.
  • Gilman Hill Asset Management LLC boosted its stake in shares of United Technologies Corp. by 6.9% in the second quarter. Gilman Hill Asset Management LLC now owns 3,866 shares of the company’s stock worth $396,000 after buying an additional 250 shares in the last quarter.

Insider Movement

United Technologies Corp. Director Brian C. Rogers acquired 5,000 shares of the company’s stock in a transaction on Wednesday, December 7th. The shares were acquired at an average cost of $107.94 per share, with a total value of $539,700.00. Following the completion of the acquisition, the director now directly owns 5,000 shares in the company, valued at $539,700.

Analysts Opinions                                                  

Investment analysts at RBC Capital Markets started coverage on shares of United Technologies Corporation in a research note issued to investors on Thursday. The firm set a “sector perform” rating and a $118.00 price target on the stock. RBC Capital Markets’ target price indicates a potential upside of 7.06% from the stock’s current price.

A number of brokerages have commented on UTX…..

  • Credit Suisse Group AG upgraded shares of United Technologies Corp. from a “neutral” rating to an “outperform” rating and increased their price target for the company from $108.00 to $125.00 in a research note on Monday, December 19th.
  • Finally, Stifel Nicolaus reiterated a “hold” rating on shares of United Technologies Corp. in a research note on Wednesday, October 26th.

Twelve analysts have rated the stock with a hold rating and nine have given a buy rating to the company’s stock. The stock has a consensus rating of “Hold” and an average target price of $115.166.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the UTX MAY 19 2017 115.000 call at approximately $1.90. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

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