Why Textron Is Likely To Miss Earnings Despite Beating Revenue Expectations For FY19

by Trefis Team
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Textron (NASDAQ:TXT) will release its Q4 and full-year 2019 results on Wednesday, January 29. We believe that Textron’s Revenues will be ahead of consensus estimates, although the company will report an earnings miss. We expect Textron to report revenues of $14 billion (vs. consensus estimate of $13.6 billion), which would be 0.4% higher than the previous year. Earnings per share are likely to be around $3.31 (vs. consensus estimate of $3.67) – lower than $4.83 reported in 2018 due to a much smaller net income margin. We believe that stronger-than-expected revenues for FY 2019 would very likely be able to mitigate the impact of weaker-than-expected earnings in investors’ minds – resulting in a positive movement in Textron’s stock price once it announces earnings. Our forecast indicates that Textron’s Valuation is $56 per share, which is 20% higher than its current market price of roughly $45.

 

A] Revenue Expected To Beat Consensus

  • Total revenues have increased from $13.8 billion in 2016 to $13.9 billion in 2018.
  • Trefis estimates Textron’s revenues to improve further by 0.4% to $14 billion in 2019.
  • Revenue improvement is expected to be driven primarily by higher Citation jet volume, higher Industrial segment revenues, and the launch of a new Specialized Vehicles product line.

A separate interactive dashboard for Textron provides an in-depth view of Textron’s revenue trend and segment-wise revenue performance, along with forecast for 2020.

 

B] EPS To Be Lower Than Expected

  • Textron’s 2019 earnings per share (EPS) is expected to be $3.31 per Trefis analysis, lower than the consensus estimate of $3.67 per share.
  • A sharper increase in Total Expenses will offset gains from higher revenues as well as lower share count – driving the EPS lower compared to 2018.
  • As we forecast Textron’s Revenues to grow at a slower rate than Expenses in 2019 (0.4% vs. 4%), this will result in a reduction in Textron’s Net Income Margin figure from 8.7% in 2018 to 5.8% in 2019.

 

C] Stock Price Estimate Higher than Market Price

  • A trailing P/E multiple of 16.8x looks appropriate for Textron’s stock, which is higher than the current implied P/E multiple of 12.3x.
  • Our forecast for Textron’s earnings and P/E multiple yields a fair value of $56 for Textron’s stock, which is above its current market price of around $45.

Additionally, you can input your estimates for Textron’s key metrics in our interactive dashboard for Textron’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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