United Technologies' Breakup Should Unlock Value
Our sum-of-the-parts assessment surpasses our current fair value estimate.
In the wake of completing the Rockwell Collins deal, United Technologies (UTX) has announced plans to split itself into three companies: aerospace, Otis (elevators), and Carrier (building systems). Per management, the separation of Carrier and Otis should be completed sometime in 2020. The aerospace business will retain the United Technologies name and current chairman and CEO Greg Hayes will lead the company. Management didn't identify the executive teams for Carrier or Otis. Our discounted cash flow model generates a fair value of $144 per share for United Technologies, but using a sum-of-the-parts method, we arrive at $168 per share. We think there is potentially more upside for Carrier and Otis, given the significant amount of attention paid to and investment in the aerospace business over the past several years.
Using PitchBook's median 10-year enterprise value/EBIT multiples for United Technologies’ business unit peers and our projections for each unit's 2019 operating profit, we calculate an enterprise value of about $194 billion, which is nearly 50% above the current $131 billion enterprise value. Backing out debt, pensions, corporate costs, dissynergies, and other items, we arrive at a value of $168 per share. We believe United Technologies’ aerospace business has an enterprise value of $107 billion, which represents about 55% of our total enterprise value for the company. The Carrier business accounts for 27% of our sum-of-the-parts valuation ($52 billion enterprise value), and we put Otis’ enterprise value at roughly $36 billion based on peer multiples.
Chris Higgins does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.