Deutsche Bank On United Technologies: 'Hope Isn't A Strategy,' Downgrading To Hold

In a report published Wednesday, Deutsche Bank analyst Myles Walton downgraded the rating on United Technologies Corporation UTX from Buy to Hold, while lowering the price target from $128 to $112. The company has revised its FY guidance down and the analyst believes that the 2016/2017 prospects are "uncompelling."

Although the Q2 results were mostly in-line with the estimates, the sales, EBIT and EPS guidance was lowered, mostly due to one-time issues, mostly associated with the UTAS and China Otis businesses.

"We expected new mgmt would realign expectations quickly and provide tangible results in improving quality of earnings and growth trajectory. Although recent aftermarket commentary across the sector has been mixed, the size of the UTAS miss looks company specific," Walton elaborated.

Moreover, China has been a challenging market, with incremental share erosion, while the European market does not appear to be stabilizing. Therefore, the analyst believes that the underlying earnings potential for 2016/2017 are "uncompelling."

According to the Deutsche Bank report, "Headwinds into '16 have mounted with higher odds for further FX drag, continued negative engine margins at Pratt, a question mark in UTAS, strong Transicold performance in '15 could lead to tough comps, and China pressuring Otis."

The 2015 and 2016 EPS estimates have been lowered from $6.70 to $6.56 and from $7.30 to $6.76, respectively.