Market Report: Black Hawk Down? Not for Long!
Army readiness reports reveal that roughly half the vehicles subjected to four years of steady use in the harsh conditions of Afghanistan and Iraq are completely blown out. Over the past 18 months or so, the guys in green have already patched up some 28,000 tanks, troop carriers, trucks, Humvees and trailers. And there is still plenty of work, to the tune of another 16,700 blown-up, broken-down and just plain worn-out tanks and trucks waiting in the cue.
In This Article:
-- The Army must repair or rebuild more than 1,000 UTX/Sikorsky UH-60 Black Hawk helicopters…
-- The Black Hawk is just a small piece of the “rebuild” pie, representing about 4.66% of UTX’s Q2 operating profit…
-- I predict yet another new high for UTX shares within the next 20 trading days, and another 12-15% growth for the second half of 2007.
What does the future hold for UTX’s Sikorsky and Pratt & Whitney units?
Half the presidential candidates running around Iowa this week want to yank our boys out of Iraq tomorrow, while the other half are content to wait a couple of weeks. Not that it matters but so much what they say in August 2007. Heck, Dr. Dean was leading the polls four days before the 2004 Iowa caucuses, came in a distant third days later, and was thoroughly irrelevant by the national elections.
Still, when Congress gets back from recess come September 3, some sort of drawdown will once again become the subject de jour. And it’s not just our troops on the ground that could use a bit of a break.
Army readiness reports reveal that roughly half the vehicles subjected to four years of steady use in the harsh conditions of Afghanistan and Iraq are completely blown out. Over the past 18 months or so, the guys in green have already patched up some 28,000 tanks, troop carriers, trucks, Humvees and trailers. And there is still plenty of work, to the tune of another 16,700 blown-up, broken-down and just plain worn-out tanks and trucks waiting in the cue.
Now let’s attempt to look a little higher: The Army concedes that it needs to repair or rebuild more than 1,000 UTX/Sikorsky UH-60 Black Hawk helicopters. And these are just the Army units that are beaten to death from continuous operation in broiling hot sand-filled air. The numbers damaged in actual combat or deployed by various Special Forces are classified.
In point of fact, if we stepped out of this theater tomorrow morning, the military is still planning a system-wide “reset,” a recovery and rebuilding program that would shower tens of billions on various suppliers over the next few years. Indeed, this reset is the very reason many in the Pentagon support a drawdown, as it would free funds currently being sucked up by contentious repeated “supplemental spending” requests.
So what does all this repair work mean to companies like United Technologies (UTX:NYSE)? The Black Hawk is just a small piece of the “rebuild” pie, representing about 4.66% of UTX’s Q2 operating profit. But UTX has its fork in numerous other pieces: in 2006, it provided engines, aeronautics and logistical support for the various armed services currently serving air fighters and transports. All told, this hits some 25% of UTX’s bottom line.
Looking forward, I predict yet another new high for UTX shares within the next 20 trading days, and another 12-15% growth for the second half of 2007. As always, this gain can be leveraged into triple digits via select deployment of call options.
Adam
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