Textron Earnings: Company Seems Poised to Capitalize on NetJets Partnership and Army Rotorcraft

No-moat-rated Textron TXT posted solid operating results, growing revenue 8.6% year over year and increasing its full-year earnings guidance by $0.25. Textron’s Aviation business had a particularly strong quarter, growing almost 15% year over year, and discussed its sizable new purchase agreement from NetJets.

The most important takeaway from Textron’s third-quarter results, in our view, surrounded management’s comments on NetJets’ agreement to purchase up to 1,500 aircraft over 15 years, which we believe validates Textron’s investments in the Citation Latitude, Longitude, and Ascend jet models. For reference, the last year Textron delivered over 100 midsize to super-midsize aircraft in a year was 2009. It now has the opportunity to deliver up to 150 more of these planes annually after 2025 when the Ascend launches. Therefore, we raise our fair value estimate to $86 per share from $80, as we forecast a likely mix shift toward higher-price and higher-margin aircraft over the coming years.

Despite some headwinds from supply-chain shortages limiting the number of commercial deliveries within the Bell helicopter and rotorcraft division, the company was still able to drive margin improvement, as Bell’s segment margin increased 90 basis points sequentially. We like the long-term prospects of the rotorcraft segment, which we believe represents the largest strategic opportunity for the company. We expect supply-chain issues within the fairly stable commercial business will subside. Further, we project Bell’s military business will drive growth as it continues to ramp on the Army’s V-280 FLRAA program, and capitalizes on the opportunity to service hundreds of high-value, tilt-rotor aircraft.