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Textron Inc TXT

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Textron Sees a Demand Surge for Small Private Jets, but That May Be a Function of the Corona Economy

Burkett Huey, CFA Equity Analyst

Analyst Note

| Burkett Huey, CFA |

No-moat-rated Textron reported a strong first quarter as it starts to show operating leverage with the recovering economy. We hadn’t given the firm enough credit for the structural cost takeout measures it enacted during the pandemic, and we’re raising our fair value estimate to $42 per share from $39 as we increase our midcycle margin to 9.0% from 8.4% to reflect the improved cost structure. However, the shares still look pricey currently. We think the market is either pricing in Textron winning both Future Vertical Lift contracts over the Boeing-Sikorsky team, which would add a structural 4%-5% to the top line by our estimates, or pricing in margin expansion to a midteens level. We think it’s imprudent to price in Textron-Bell winning both contracts in a base-case scenario, given the stiff competition, and we would like to see more evidence of the magnitude of cost takeouts before giving the firm credit for it. Sales came in at roughly $2.9 billion and the firm delivered earnings per share of $0.70, which beat FactSet consensus by 5.4% and 49.6%, respectively.

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Company Profile

Business Description

Textron is a conglomerate that designs, manufactures, and services specialty aircraft for various end markets, but it also has several unrelated businesses. The firm’s aviation segment manufactures and services Cessna and Beechcraft business aircraft. Bell is a helicopter manufacturer and servicer for both the commercial and military end market. Textron Systems produces uncrewed aircraft and armored vehicles for the military market as well as aircraft simulators for the commercial and military end markets. Textron Industrial contains a Kautex business that manufactures plastic fuel tanks for conventional and hybrid motor vehicles and produces specialized vehicles such as golf carts, snowmobiles, all-terrain vehicles, and others.

Contact
40 Westminster Street
Providence, RI, 02903
T +1 401 421-2800
Sector Industrials
Industry Aerospace & Defense
Most Recent Earnings Mar 31, 2021
Fiscal Year End Jan 4, 2021
Stock Type Cyclical
Employees 33,000

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