UTX – Market expectations are for Uniform ROA expansion, but management has concerns about end markets, Otis, and Collins Aerospace

• United Technologies Corporation (UTX:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 21.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about the HVAC and housing markets, Otis sales growth, and synergies with Collins Aerospace
• Specifically, management may be concerned about production bottlenecks, headwinds for Carrier, the HVAC market outlook, and declines in the housing market. Furthermore, they may be exaggerating the fuel savings from their demonstrator program and cost synergies with Collins Aerospace. Also, they may be concerned about Otis’ ability to sell elevators, their ability to sustain organic growth, and continue to beat operating profit expectations. In addition, they may lack confidence in their ability to sustain inventory turns improvements in Collins, increase liquidity, and offset negative engine losses.