Back to top

Analyst Blog

Diversified U.S. conglomerate, Textron Inc. (TXT - Analyst Report) was awarded a $79.9 million contract for Foreign Military Sales to Saudi Arabia. The contract involves modification for procurement of cluster bomb units and associated training rounds.  The locations of the performance are Wilmington, Massachusetts and McAlester, Oklahoma.  Work is expected to be completed by December 31, 2015.  

We believe Textron should do well in its commercial aerospace businesses with the gradual recovery in the economy. The improving fundamentals in the commercial aerospace industry should bode well for Textron’s Cessna jets and Bell Helicopter businesses going forward. Cessna’s fortunes will improve mainly due to high demand for light cabin business jets. Also, in the near term, Bell’s growth will be guided by a judicious mix of military and commercial business from the V-22 Osprey and H-1 helicopters. Textron Systems will also see growth coming from government’s focus on UAVs (unmanned aerial vehicles) and ASVs (armored security vehicles).

Also, Textron’s geographically diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk. The company is known around the world for its most recognizable and valuable brand names, such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO and Greenlee. The company has a strong presence in diverse areas of business jets and other general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks. Textron continues to enjoy a strong backlog at its business divisions.

Textron’s balance sheet remains stable with a long-term debt-to-capitalization of 55.9% at the end of the first nine months of 2012. The company also ended the first nine months of 2012 with cash holdings of $1.2 billion, which, along with its receivables liquidation expected to come through, would be enough to keep the liquidity profile of the company in good shape. Textron’s balance sheet also improved following the shedding of $496 million of long-term debt in the first nine months, leaving approximately $1.8 billion of long-term debt.

We currently have a long-term Neutral recommendation on Textron. The stock carries a Zacks #4 Rank (Sell rating) in the short run, primarily due to the high-level of current valuation. The stock is now trading at a premium in terms of forward earnings estimates versus its diversified conglomerate peers like Honeywell International Inc. (HON - Analyst Report) and Carlisle Companies Incorporated (CSL - Snapshot Report).

Based in Providence, Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools.
 

Please login to Zacks.com or register to post a comment.