Textron (TXT) Last Update 11/2/21
Related: CAT BA LMT GLW
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Textron
STOCK PRICE
DIVISION
% of STOCK PRICE
Bell Helicopter
51.1%
$36.33
Industrial
10.5%
$7.49
Textron Systems
10.1%
$7.17
Finance
0.9%
$0.65
Net Debt
7.8% $5.51
TOTAL
100%
$71.03
$65.52
Yours
Trefis Price
N/A
$72.73
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Textron Company

VALUATION HIGHLIGHTS

  1. Bell Helicopter constitutes 51% of the Trefis price estimate for Textron's stock.
  2. Cessna & Beechcraft Airplanes constitute 27% of the Trefis price estimate for Textron's stock.
  3. Industrial constitutes 11% of the Trefis price estimate for Textron's stock.

WHAT HAS CHANGED?

Recovery from the pandemic

• The shares of Textron are currently trading at 47% above pre-Covid levels and are almost comparable to the highs observed in September 2019. The recent surge in the stock price has been driven by a quick recovery of the company’s Aviation segment, which contributes 40% of total revenues and 35% of total profits.

• Textron's competitor, Bombardier is a leading manufacturer of business jets with its product portfolio segregated across three brands – Learjet, Challenger, and Global. Bombardier primarily sells medium and large aircraft with unit costs ranging from $20 million to $75 million. On the contrary, Textron caters to the light aircraft market with unit costs lower than $30 million.

• Per Bombardier’s investor day presentation, medium & large aircraft sales account for 60% of total industry deliveries. After observing a 20% contraction in 2020, the total industry deliveries are likely to grow at a slow pace in the coming years.

• Notably, the total industry revenues are likely to reach 2019 levels by 2024.

BUSINESS SUMMARY

Textron is a multi-industry company that designs and manufactures civilian and military helicopters, business jets, turboprop aircraft, piston-engine airplanes, golf cars, off-road and light transportation vehicles, turf care equipment, power tools, and a variety of defense products. The company also provides financing to promote sales of some of its products, including helicopters and airplanes.

Textron conducts its business through five operating segments: Bell commercial and military helicopters, Textron Aviation (which includes Cessna and Beechcraft airplanes' business), Textron Systems (which includes the company's defense system business), Industrial (which includes the company's turf care equipment, golf cars, off-road and light transportation vehicles, and auto component business), and finance (which provides financing to purchasers of Textron products).

The company sells its products directly as well as through a network of independent dealers. For many of its product lines, including Bell helicopters and Cessna and Beechcraft airplanes, the company also provides maintenance, repair, and overhaul services.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Textron's value that present opportunities for upside or downside to the current Trefis price estimate for Textron.

  • Cessna & Beechcraft Airplanes EBITDA Margin: Cessna & Beechcraft Airplanes EBITDA Margin remained around 15-16% before the financial crisis of 2009. But the segment's margin declined to low single-digits in the aftermath of the crisis, as production rates were cut in response to a sudden decline in demand for business jets, turboprops, and piston-engine airplanes. The margin remained between 2-6% during 2009-2013 as Cessna's business jet deliveries continued to fall during this period. Positive synergies from the Beechcraft acquisition helped margins increase up to 8.1% and 11.1% in 2014 and 2015, respectively. In 2016 and 2017, however, the growth in margin was also hurt by lower deliveries of larger midsize jets -- the Cessna Latitude and Cessna Longitude. Cessna's margins remained at 11% in 2019. However, if margins can rise to 14% until the end of the forecast period, then there could be a potential upside of about 12% to Trefis price estimate for Textron's stock.

SOURCES OF VALUE

The 'Cessna & Beechcraft Airplanes' and the 'Bell Helicopter' divisions together account for approximately 70% of Textron's valuation, as per our estimate.

Textron's leading position as a general aviation airplane manufacturer

Through its Textron Aviation segment, which includes Cessna and Beechcraft airplanes, Textron is one of the largest general aviation airplane makers in the world. General aviation airplanes include all airplanes not meant for scheduled commercial service or military purposes. The company has a strong presence in all three sub-segments of the general aviation market: piston-engine airplanes, turboprops, and business jets.

We figure with recovery in demand for business jets, higher demand for piston-engine airplanes from pilot schools, and rising global demand for agricultural turboprop aircraft, Textron could see its airplane sales rise in coming years.

Bell's wide helicopter product portfolio

Bell Helicopters is a well-established player in the global helicopter market. The company's portfolio has many commercial and military helicopters, which will help it maintain its market share in the coming years. In the commercial space, with demand for helicopters from the offshore oil & gas sector rising, Bell's sales could rise. At the same time, Bell's global sales and service network will also help it gain from the rising demand for helicopters from Asia-Pacific and the Middle-East regions.

KEY TRENDS

Lower airplane shipments could hurt revenues

  • With economic recovery from the financial crisis, shipments of general aviation airplanes are steadily rising. These rising airplane shipments are being driven by a recovery in demand for business jets (especially large-cabin, long-range jets), steady demand for agricultural turboprops, and strong demand for piston-engine airplanes from flight schools.

Rising demand for commercial helicopters and general aviation airplanes from the emerging countries

  • The helicopter market saw tough times over the past few quarters as declining oil prices forced companies to ground a substantial amount of its fleet. However, oil prices are recovering now, and we can see the demand at Bell increase significantly.
  • Additionally, with rapid economic growth in many countries of the Asia-Pacific region, demand for commercial helicopters, business jets, and turboprops is growing from these countries. Additionally, with rising personal and corporate incomes, demand for light helicopters, which ferry business VIPs, and business jets, which transport senior-level corporate executives, is growing.