Back in June, United Technologies (NYSE:UTX) announced that it would officially merge with top defence contractor Raytheon to form Raytheon Technologies next year. The deal is slated to close in the first quarter of 2020. United Technologies subsidiaries Carrier and Otis Elevators will spin into separate companies.
Raytheon is getting the benefit of a conglomerate discount and the two companies will move forward with combined resources that will significantly boost R&D capabilities and capital investment. Looking at things from a macro perspective, defence companies should be the top target of investors on the hunt for growth.
Just look at the "debate" over the coming fiscal 2020 U.S. Defense Budget. The Senate passed the gigantic $750-billion defense authorization bill by a vote of 86 to eight. Congressional Democrats have voiced concerns over the size of the spending bill, but all signs point to it passing comfortably in the next round. Its boosters point to rising geopolitical tensions around the world. The United States is engaged in power struggles with Iran and its allies in the Middle East, China in the Asia-Pacific region, and Russia on the Eurasian front.
United Technologies and Raytheon both got off to strong starts in the first quarter of 2019. Raytheon saw net sales rise 7.4% year-over-year to $6.7 billion and United Technologies posted sales growth of 20% to $18.4 billion. Both companies will benefit enormously from this bi-partisan investment in boosting U.S. military strength around the world.
