Goldman Sachs upgrades United Technologies, sees 30% rally this year

  • Goldman Sachs upgrades United Technologies to buy from neutral.
  • The firm's new 12-month price target of $173 represents a gain of 31.5 percent from the stock's closing price Friday.
Greg Hayes
CNBC
Greg Hayes

United Technologies shares are ready to outperform the Dow Jones industrial average mightily this year after the aerospace leader trailed the benchmark the previous 12 months, Goldman Sachs believes.

Goldman upgraded United Technologies to buy from neutral to start the week. The firm's new 12-month price target of $173 represents a gain of 31.5 percent from the stock's closing price Friday.

Manufacturing issues with a new type of engine in its Pratt Whitney unit — the Geared TurboFan engine — are close to an end, the firm believes.

"UTX trades near all time low valuation discounts to all of Multi-Industry, Aerospace and Elevator comp groups when stripping out the current GTF loss (but still assigning no value to positive out-year contributions)," analyst Noah Poponak wrote in a note late Sunday to clients. "We think the market will increasingly look at the stock through that lens as 2018 progresses."

United Technologies shares are up 17 percent in the last 12 months, far less than the 27 percent gain for the Dow, of which it is a component.

Outside of resolution to the engine troubles, Goldman sees other reasons to be positive on the new year, including tax reform. United Technologies is in the process of acquiring Rockwell Collins, an aviation technology leader.

"The pending Collins acquisition has its risks, but our analysis suggests the deal will be cash flow accretive in 2019. We expect US tax reform to lower the UTX rate significantly, and UTX is a repatriation beneficiary given its large overseas cash balance."

— CNBC's Michael Bloom contributed to this story.