United Technologies' shares rise as it weighs spinning off Sikorsky; analysts approve move
Shares in United Technologies rose Thursday after the company said it is considering spinning off its Sikorsky helicopter division.
Industry analysts backed the move, saying it would allow the conglomerate to develop its remaining businesses, while reducing its exposure to cuts in defense spending.
United Technologies said Wednesday it will consider a tax-free spinoff of Sikorsky, among other options. It said a separation would help it better focus on providing systems and services for aerospace and building industries. Its other businesses include Pratt & Whitney, which makes jet engines, and Otis, an elevator maker.
The Hartford, Connecticut, company said it wants to complete its strategic review before the end of the year.
Shares of United Technologies Corp. rose $2.96, or 2.5 percent, to $121.30 in afternoon trading.
The company reported about $65 billion in revenue in 2014, and Sikorsky accounted for $7.5 billion of that total. It makes Black Hawk and Seahawk helicopters for the military as well as commercial helicopters.
Morgan Stanley analyst Nigel Coe said Thursday that separating Sikorsky makes sense.
"We believe that Sikorsky, as an assembler of original equipment airframes, does not fit into United Technologies' core competency as a systems supplier," Coe wrote in a note to clients. He said he thinks United Technologies will spin off Sikorsky instead of selling it because of the tax benefits that would accompany a spinoff.
He has an "Overweight" rating on United Technologies' stock.
Sterne Agee analyst Peter Arment noted Sikorsky brings in about 10 percent of the company's revenue but only 6 percent of its profits. He added that a separation would reduce the risk United Technologies faces from a potential slump in defense-related sales. He rates the stock "Buy" with a price target of $140 per share.
United Technologies' stock has climbed 22 percent since Oct. 16, a few days before the company reported its third-quarter results. It set an all-time high of $124.45 on Feb. 20.