Major Airlines Likely to Complain over Rockwell Collins/United Technologies Merger

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

United states Industrials / Thematic (Sector/Industry)

Shares of diversified industrials have traded up in the aftermath of the U.S. presidential election, frothy with anticipation as a Republican-controlled Congress offers the possibility of business-friendly policymaking meant to revitalize a U.S. manufacturing landscape affected by globalization. This sentiment rang loud and clear at the 2017 annual outlook meetings of four U.S.-based wide-moat industrial titans representing over half a trillion dollars of market capitalization: <a href="https://www.smartkarma.com/entities/3-m-co" target="_blank" data-smartkarma-citation="entities:14866:1">3 M Co (MMM US)</a> , <a href="https://www.smartkarma.com/entities/782" target="_blank" data-smartkarma-citation="entities:782:1">General Electric Co (GE US)</a> , <a href="https://www.smartkarma.com/entities/12750" target="_blank" data-smartkarma-citation="entities:12750:1">United Technologies Corp (UTX US)</a> , and <a href="https://www.smartkarma.com/entities/16765" target="_blank" data-smartkarma-citation="entities:16765:1">Honeywell International Inc (HON US)</a> .While management teams enthusiastically highlighted corporate tax reform, capital mobility, and infrastructure spending as potential near-term earnings tailwinds, all stopped short of explicitly incorporating these favorable outcomes into 2017 expectations. We agree that it's too early to include Trump's America in the base-case assumptions that fuel our discounted cash flow analyses. However, if Trump's target corporate tax rates and modest top-line growth materialize, our bull-case scenarios look realistic, which would offer investors returns of 46.6% from today's market price for shares of United Technologies, 32.3% for GE, 30.9% for Honeywell, and 17.5% for 3M. Given the cone of uncertainty surrounding the timing and feasibility of the new administration's plans, we recommend that investors wait until greater margins of safety emerge to build positions in 3M, GE, and Honeywell, which all look slightly overvalued according to our base-case scenarios; however, we continue to like United Technologies, which is trading at a 9% discount.Analyst: Barbara Noverini

Shares of diversified industrials have traded up in the aftermath of the U.S. presidential election, frothy with anticipation as a Republican-controlled Congress offers the possibility of business-friendly policymaking meant to revitalize a U.S. manufacturing landscape affected by globalization. This sentiment rang loud and clear at the 2017 annual outlook meetings of four U.S.-based wide-moat industrial titans representing over half a trillion dollars of market capitalization: 3 M Co (MMM US) , General Electric Co (GE US) , United Technologies Corp (UTX US) , and Honeywell International Inc (HON US) .While management teams enthusiastically highlighted corporate tax reform, capital mobility, and infrastructure spending as potential near-term earnings tailwinds, all stopped short of explicitly incorporating these favorable outcomes into 2017 expectations. We agree that it's too early to include Trump's America in the base-case assumptions that fuel our discounted cash flow analyses. However, if Trump's target corporate tax rates and modest top-line growth materialize, our bull-case scenarios look realistic, which would offer investors returns of 46.6% from today's market price for shares of United Technologies, 32.3% for GE, 30.9% for Honeywell, and 17.5% for 3M. Given the cone of uncertainty surrounding the timing and feasibility of the new administration's plans, we recommend that investors wait until greater margins of safety emerge to build positions in 3M, GE, and Honeywell, which all look slightly overvalued according to our base-case scenarios; however, we continue to like United Technologies, which is trading at a 9% discount.Analyst: Barbara Noverini 

Spirit Aerosystems Holdings, Inc (SPR US)

Tax Reform Top of Mind for Wide-Moat U.S. Industrial Firms