United Technologies Corporation Longs Getting A Reprieve, But Will It Last?
United Technologies Corporation (NYSE: UTX) shareholders loved 2013 and the first half of 2014. Following June's peak, however, the stock has been all over the place.
Will there be more damage or more new highs to come?
United Technologies stock was slapped down hard after failing to make new highs for the first time in a while in July. The stock fell from around $120 to just under $105 in about 45 days. The last two weeks have brought a bounce in the stock, but is this bounce the start of something new and lasting to the upside or just a precursor to more trouble ahead for the longs?
What The Bulls Are Seeing
The bullish crowd around United Technologies like the stock for its cheap valuation metrics, its great positive cash flow, its acceptable balance sheet ratios and its 2.2 percent dividend yield. Valuation wise, United Technologies sports a price-to-book ratio at 2.94, a price-to-sales at 1.95 and an enterprise value that trumps its market capitalization.
The balance sheet shows that the company has debt, but that the current ratio is okay at 1.22 and the debt-to-equity ratio is only 56 percent. Meanwhile, the company is making great money and sporting levered free cash flow of more than $4 billion.
Technically, the bulls do not have much on which to hang their hats.
What The Bears Are Seeing
The bears, on the other hand, look at the technicals and see a great opportunity to fade what appears to be a bear market bounce in shares. By their calculation, a move back down to the recent low at $103.14 (from $108.60 at Monday's close) should take place sooner than later before another bounce takes place.
Fundamentally, the bears don't like United Technologies simply because of the anemic revenue growth of only 7.6 percent that the company is expected to post in the next 12 months. Such weak revenues makes earnings growth very difficult -- only expected to come in at 10 percent –- which in turn makes the seemingly cheap P/E ratio of 17 not quite as attractive as it was on the surface.
Who Will Win Out?
The bears may have the edge in the short term, with the possibility of the stock tumbling back down to at least $103.14 and possibly even down to the long-term uptrend line way down in the low $90s if things get really bad. If support can be held at $103.14, $97 or even the $93-$94 range, however, the stock could turn back to the upside and mount a nice rally.
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