As United Technologies Corp (UTX.N) nears a decision on how it will divest its Sikorsky helicopter division, the U.S. conglomerate faces challenges to its financial outlook that may limit the lift to its stock in the near term.
UTC shares have declined 5 percent this year, hurt by the global economic jitters that have spooked shareholders of many multinational manufacturers, investors and analysts said on Thursday. Stock market upheaval in China and stalled sales at some of its businesses also darken the horizon.
"As long as there's economic weakness outside the U.S., which doesn't seem to be lifting anytime soon, it's going to be one of those stocks that suffers," said Keith Davis, principal at investment management firm Farr, Miller & Washington, which holds about 250,000 UTC shares.
UTC has twice trimmed its 2015 profit forecast this year, and recently signaled further pressure. In an analyst meeting last month, it pointed to weak equipment order trends at its Otis elevators business, which accounts for about one-fourth of its operating profit and is dependent on China.
Since then, the Chinese stock market rout has heightened concern about the country's economy. China has been expected to account for about two-thirds of all new elevator sales this year, analysts at William Blair said this week.
Also, UTC said last month its UTAS aircraft components and systems unit would not hit sales growth targets in the commercial after market business.
"It’s hard to see a real catalyst" for the stock, said Chip Pettengill, portfolio manager at Bahl & Gaynor Investment Counsel, which holds more than 520,000 shares. "The stock is probably going to be stuck for a while."
Following UTC's June announcement that it would split off Sikorsky, Reuters reported on Wednesday that Lockheed Martin Corp (LMT.N) and Textron Inc (TXT.N) have emerged as final contenders to buy it, with a decision possible by month's end. UTC, however, could decide instead to spin Sikorsky off.
While a strong sale price might boost the stock, benefits from the divestment are now largely incorporated into the shares, Pettengill said.
New Chief Executive Greg Hayes, who was elevated to his post in November and subsequently initiated the Sikorsky strategic review, has said he is interested in large acquisitions but that expensive valuations have undercut his desires.
How the company decides to use its cash "continues to be a focus of investors," said Sterne Agee CRT analyst Peter Arment.
Pettengill advocates using some to buy back shares. "I would think the market would perceive that favorably," he said.
(Reporting by Lewis Krauskopf; Editing by Peter Galloway)