Goldman Downgrades United Technologies, Removes From Buy List

United Technologies Corporation UTX shares have appreciated 23 percent since its February lows, as compared to the 13 percent rise in the S&P.

Goldman Sachs’ Noah Poponak downgraded the rating on the company from Buy to Neutral, while raising the price target from $103 to $107.

Limited Upside

“While we still think UTX is a high quality company, well positioned for the long term, and like certain end-market exposures, it also has multiple growth headwinds,” Poponak mentioned.

The analyst expects only 3 percent upside from the target price for United Technologies, following the appreciation since February.

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Growth Challenges

“While certain Industrial indicators have seen a positive second derivative, at UTX we see Aerospace OE and private non-res (two major markets) slowing, minor challenges with the GTF entry into service, and margins declining in a few segments,” Poponak stated.

However, the analyst also pointed out that the company was well positioned in its end markets and was likely to grow faster than GDP in the long term.

United Technologies also has higher than average CROCI, as compared to its peers, with lower-than-average volatility through the cycle.

The EPS estimates for 2016, 2017 and 2018 have been lowered to reflect lower Pratt and Otis margins.