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United Technologies (UTX) to Equip A320neo With GTF Engine

Zacks Equity Research

United Technologies Corporation’s UTX business unit, Pratt & Whitney, recently secured a contract to equip JetSMART’s 85 Airbus A320neo family aircraft with its GTF engine. The deal also involves a 12-year EngineWise Comprehensive service agreement, wherein Pratt & Whitney will offer JetSMART with GTF engine maintenance service. The delivery of the aircraft powered by the new engines is likely to commence in the third quarter of this year.

The GTF engine has a solid track record of high reliability and operational efficacy. Notably, the GTF engine has an impressive fuel efficiency capability, with fuel burn reduction capacity of 16%. The engine also supports airline operators in lowering nitrogen oxide emissions by 50% compared to regulatory standard, apart from reducing the noise footprint by 75%.

Notably, the use of GTF engines will allow JetSMART to enhance the operational efficiency of A320neo aircraft with reduced fuel burn, emissions and noise. As a matter of fact, this will help JetSMART to lower cost, and offer its passengers reduced fares across South America.

Our Take

United Technologies is well poised to gain from strength in commercial aftermarket and military businesses. Also, growth in GTF production, continued investment in innovation, and launch of new products, particularly at the Carrier segment, are likely to drive the company's commercial business revenues. Notably, for 2019, it anticipates organic sales to grow roughly 3-5%.

Also, United Technologies intends to become more competent on the back of meaningful business acquisitions. In this regard, the buyout of Rockwell Collins (completed in November 2018) is worth mentioning. Rockwell Collins contributed strongly toward operating profit growth in the first quarter. Notably, the buyout has been fortifying the company's existing product portfolio and also aiding in launching innovative solutions for aerospace customers. United Technologies expects the acquisition to be accretive to adjusted earnings per share in 2019, with cost synergies of at least $500 million by the fourth year of completion of the deal.

In the past three months, the Zacks Rank #2 (Buy) company has returned 1% against industry’s decline of 0.6%.

Other Key Picks

Some other top-ranked stocks from the same space are Carlisle Companies Incorporated CSL, Federal Signal Corporation FSS and Honeywell International Inc. HON. While Carlisle sports a Zacks Rank #1 (Strong Buy), Federal Signal and Honeywell carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carlisle outpaced estimates thrice in the preceding four quarters, the average positive earnings surprise being 19.07%.

Federal Signal surpassed estimates in each of the preceding four quarters, the average positive earnings surprise being 21.75%.

Honeywell beat estimates in each of the preceding four quarters, the average positive earnings surprise being 3.50%.

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