Will Textron Stock See Higher Levels Post Q3 Results?

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Textron

Textron stock (NYSE: TXT) is scheduled to report its Q3 2022 results on Thursday, October 27. We expect it to post revenue and earnings broadly in line per the street expectations. The company will likely continue to benefit from higher aircraft and aftermarket volume. Not only do we expect the company to navigate well over the latest quarter, but our forecast indicates that TXT stock is undervalued, as discussed below. Our interactive dashboard analysis of Textron Earnings Preview has additional details.

(1) Revenues expected to be slightly below the consensus estimates

  • Trefis estimates Textron’s Q3 2022 revenues to be around $3.1 billion, reflecting low single-digit y-o-y growth and slightly below the $3.2 billion consensus estimate.
  • With the rising travel demand, Textron should benefit from increased aircraft and aftermarket volume.
  • Its Industrial business should continue to benefit from better price realization.
  • However, the Bell segment will be in focus, given that it saw a sharp 23% decline in sales in the last quarter due to lower military revenues for its H-1 program.
  • Looking at Q2 2022, the company saw its sales decline 1% y-o-y to $3.2 billion, as higher sales for Aircraft and Industrial segments were more than offset by a double-digit decline in Bell and Textron Systems’ sales.
  • Our dashboard on Textron Revenues has more details on the company’s segments.
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(2) EPS likely to be marginally below the consensus estimates

  • Textron’s Q3 2022 adjusted earnings per share (EPS) is expected to be $0.92 per Trefis analysis, just two cents below the consensus estimate of $0.94.
  • The company’s net income of $217 million in Q2 2022 reflected a 19% rise from its $183 million figure in the prior-year quarter, primarily due to lower operating expenses.
  • For the full-year 2022, we expect the EPS to be higher at $3.95 compared to the EPS of $3.33 in 2021.

(3) TXT stock looks undervalued

  • We estimate Textron’s Valuation to be around $82 per share, which is 37% above the current market price of $60.
  • At its current levels, TXT stock is trading at just 15x forward EPS estimate of $3.95, compared to the last three-year average of 18x.
  • However, if the company reports upbeat Q2 results and provides an outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in even higher levels for TXT stock.
  • There is another near-term event that will impact TXT stock. The U.S. military is soon expected to award a new contract to replace Lockheed Martin’s Sikorsky aircraft, and Textron appears to be the front-runner for the same.
  • In case the award goes to Lockheed Martin, Textron stock can see much lower levels.

While TXT stock looks like it is undervalued, it is helpful to see how Textron’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Aerojet Rocketdyne vs. Brink’s Company.

Given higher inflation and the Fed raising interest rates, among other factors, TXT stock has seen a 22% fall this year. Can it drop more? See how low Textron stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 TXT Return 3% -22% 23%
 S&P 500 Return 0% -25% 60%
 Trefis Multi-Strategy Portfolio -2% -28% 187%

[1] Month-to-date and year-to-date as of 10/17/2022
[2] Cumulative total returns since the end of 2016

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