United Technologies 'Big Bang Theory' Outlined At Deutsche Bank

Myles Walton of Deutsche Bank on Thursday commented in a note that it has been 80 days since Greg Hayes was elevated to Chief Executive Officer at

and since then he has appointed a new Chief Financial Officer, executed a redirection of focus in the M&A organization, streamlined reporting lines in the aerospace companies and "leaned in" a bit more on shareholder capital return. "That's pretty good work in less than three months," Walton wrote. "But the question we hear from clients is that they are looking for more to counter temporary and structural earnings headwinds in front of the company." Walton notes the company's management team as recently as December said that its Sikorsky unit isn't up for sale but a potential leveraged spin of the asset "has appeal." By doing so, the analyst states that the company can up cash that could be used for shareholder return and create a better investible asset outside of the United Technologies portfolio that would have both a "self-help story" and serve as a potential acquisition target in the medium term. The analyst suggests a reorganization of the Aerospace unit, the elevation of the new head of strategy, and the lack of reorganization at Building & Industrial Systems (BIS) would point towards thinking the company is seeking larger Aerospace and Defense (versus Industrial) deals and may move down the path to separate the BIS (industrial) business from the Aerospace businesses. Walton also states that if the company's "end game" is an eventual separation of its Aerospace units from BIS, an Aerospace acquisition would "make even more sense" as a stabilizing force to balance out Pratt & Whitney, which will remain in investment mode through 2017 on the GTF engine. The company will host an Investor Day presentation on March 12 in which Walton doesn't expect the company to announce any "profound revelations" but a potential Sikorsky spin "would be in the realm of possibility." Shares remain Buy rated with a $130 price target.