Multi-industry concern Textron Inc. is known for its powerful brands Bell, Cessna, Beechcraft, and Arctic Cat, to name a few. The company was hit severely by the COVID-19 pandemic as demand for aviation vehicles and related services fell sharply.
However, the stock has gained 91.9% over the past year and is expected to continue its impressive performance as travel restrictions are eased further.
Also, Bell Textron Inc.’s Bell 505 received the European Union Aviation Safety Agency (EASA) certification at the end of 2020 and delivered the first EASA certified 505 NXi to a corporate customer in Europe last month.
Here’s what we think could shape TXT’s performance in the near-to-midterm:
Increasing Demand for TXT’s Aircrafts
TXT’s Textron Aviation in February delivered a Beechcraft King Air 350i aircraft that is expected to undergo further modifications in Japan, including a medical configuration. The aircraft is expected to enter service as a liaison/reconnaissance (LR-2) aircraft owned and operated by the Japan Ground Self Defense Force (JGSDF).
Air Archipels of Tahiti awarded a contract to Textron Aviation for one Beechcraft King Air 260 and one cargo door equipped King Air 260C aircraft. They are expected to be delivered in the second half of 2021. In addition, TXT’s Textron Systems Corporation announced in December 2020 the sale of 36 Shadow aircraft to the U.S. Army in the latest Block III configuration.
Sequential Improvement Across All Segments
TXT’s total revenues increased 34.1% sequentially to $3.67 billion for its fiscal 2020 fourth quarter, ended January 2, 2021. Its revenue from its Textron Aviation segment increased 96.2% sequentially to $1.56 billion for the quarter, while its revenue from its Bell segment increased 9.8% sequentially to $871 million. Also, TXT’s revenue from the Textron Systems, and Industrial segments increased 18.2% and 4.1%, respectively, on a sequential basis.
Favorable Analyst Estimates
Analysts expect TXT’s revenue to increase 18.9% for the quarter ending June 30, 2021 and 7.3% in its fiscal 2022. Its EPS is expected to grow 35.7% in its fiscal 2021, 22.1% in its fiscal 2022 and at a rate of 22.5% per annum over the next five years.
Reasonable Valuation
In terms of its forward non-GAAP price/earnings ratio, TXT’s 19.13x is 15.2% lower than the industry average 22.55x. In terms of forward price/sales ratio, the stock’s 0.98x is also lower than the industry average 1.60x. Also, the stock’s forward enterprise value/sales of 1.19x is lower than the industry average 2.02x. Bottom Line
As more people are vaccinated against COVID-19, investors remain hopeful for a fast return to normalcy. We expect TXT to gain in the long run as demand in the aviation industry gradually rises. So, we think it could be rewarding to buy the stock now because it is trading at a discount to its peers.
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