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United Technologies Corporation (UTX): Third Point’s Latest Thoughts

Nina Zdinjak

United Technologies Corporation (NYSE:UTX) is one of a few companies Daniel Loeb's Third Point discussed in its Q4 2018 Investor Letter - you can download a copy – here. We already covered the fund's thoughts on BAX. Now, we'll take a look at what the fund had to say about United Technologies Corporation and its recent split into three separate companies.

We  are  pleased  that  the  Board  of  Directors  decided  to  split  United  Technologies Corp. (“UTC”) into three separate, focused companies. Unfortunately,  the  initial  announcement caused  confusion  and  created  uncertainty  about  the  free  cash  flow  generation  of  newly-acquired Rockwell Collins. We believe management has largely rectified this by shortening the time to separation and providing better disclosure on Rockwell Collins’s free cash flow generation. We have urged management to quantify the elimination of stranded costs and explore  a  highly  value-creating  transaction  for  Carrier,and  believe  they  are  receptive  to these suggestions.

Despite the separation announcement, UTC’s sum-of-the-parts  discount  has  continued  to widen  and  the  valuation  gap  versus  UTC’s  closest  multi-industry   peer,   Honeywell International, has reached a new 10-year high. The coming separation will shine a greater spotlight on the large valuation gap to UTC’s pure-play peers.During the separation process, we  expect  the  management  team  to  highlight  UTC’s  asset  quality  and  to  increase transparency  around  Pratt & Whitney’s very significant multi-year  inflection  in  free  cash flow generation.

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United Technologies Corporation is a Farmington, Connecticut-based multinational conglomerate that manufactures a variety of products for aerospace systems, elevators, fire and security industries, among many others. Year-to-date, its stock has gained 21.8%, having a closing price on April 2nd of $131.90. The company's market cap is of $113.75 billion, and it is trading at a P/E ratio of 20.29.

At the end of the fourth quarter, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UTX over the last 14 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably  (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Andreas Halvorsen's Viking Global has the number one position in United Technologies Corporation (NYSE:UTX), worth close to $743.6 million, accounting for 4.2% of its total 13F portfolio. The second most bullish fund manager is Bill Ackman of Pershing Square, with a $594 million position; the fund has 10% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism include Ken Fisher's Fisher Asset Management, Eric W. Mandelblatt and Gaurav Kapadia's Soroban Capital Partners and Robert Rodriguez and Steven Romick's First Pacific Advisors LLC.

UTX

Disclosure: None.

This article was originally published at Insider Monkey.