Here’s A Better Pick Over Textron Stock

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We believe that  Boeing stock (NYSE: BA) is currently a better pick than Textron stock (NYSE: TXT) despite being the more expensive of the two, trading at 1.9x trailing revenues compared to 1.1x for Textron. Looking at stock returns, Boeing, with an 11% rise in the last twelve months, has outperformed Textron, down 3%, and the broader S&P500 index, down 10%. While both companies will likely see continued top-line expansion, Boeing is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe BA stock will offer better returns than TXT stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation multiple, in an interactive dashboard analysis of Textron vs. BoeingWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Boeing’s Recent Revenue Growth Is Better

  • Boeing’s revenue growth of 6.9% for the last twelve months is better than 3.9% for Textron.
  • However, if we look at a slightly longer time frame, both have seen a decline in sales. Textron saw its sales drop from $13.6 billion in 2019 to $11.7 billion in 2020 before rebounding to $12.9 billion in 2022. Boeing’s revenues stood at $66.6 billion in 2022, compared to $76.6 billion and $58.2 billion in 2019 and 2020, respectively.
  • The revenue decline for Textron can primarily be attributed to the impact of the Covid-19 pandemic on the company’s businesses, especially aviation and industrial. A reduction in aircraft utilization impacted its aviation aftermarket business as well. Tepid travel demand and supply chain issues led to order cancellations in 2020.
  • While aviation demand has picked up over the last year or so, Textron’s Bell helicopter revenue has decreased due to lower military demand.
  • The revenue decline for Boeing can primarily be attributed to the impact of the 737 Max grounding in 2019 and the Covid-19 pandemic on the company’s businesses, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis. Commercial Airplanes was the largest segment for Boeing, accounting for 57% of total sales in 2018, but the contribution dropped to 39% in 2022.
  • Boeing, over the recent past, has struggled to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some suppliers further added to its woes. However, of late, it has seen a rise in deliveries. It delivered 480 airplanes in 2022, vs. 340 in 2021 and 157 in 2020, reflecting significant growth in recent years. This trend is expected to continue going forward, likely increasing sales for Boeing.
  • Our Textron Revenue Comparison and Boeing Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Boeing’s revenue is expected to grow faster than Textron’s over the next three years.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. Textron Is More Profitable

  • Textron’s operating margin of 9.4% over the last twelve months is much better than -1.5% for Boeing.
  • This compares with 6.9% and -1.6% figures seen in 2019, before the pandemic, respectively.
  • Textron’s free cash flow margin of 11.6% is also higher than 5.3% for Boeing.
  • Our Textron Operating Income Comparison and Boeing Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Textron’s 25% debt as a percentage of equity is lower than 45% for Boeing, while its 13% cash as a percentage of assets aligns with that for Boeing, implying that the former has a better debt position and both have a similar cash cushion.
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3. The Net of It All

  • We see that Boeing has seen better revenue growth in the last twelve months. On the other hand, Textron is more profitable, has a better debt position, and is trading at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we still believe Boeing is currently the better choice of the two, despite its higher valuation.
  • We forecast an expected return of 25% for Boeing over this period vs. a -3% expected return for Textron, implying that investors are better off buying BA over TXT, based on Trefis Machine Learning analysis – Textron vs. Boeing – which also provides more details on how we arrive at these numbers.

While BA stock may outperform TXT, 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 at how counter-intuitive the stock valuation is for Textron vs. Whirlpool.

With higher inflation and the Fed raising interest rates, among other factors, Textron has fallen 3% in the last twelve months. 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 Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
TXT Return 0% 0% 45%
BA Return 0% 12% 36%
S&P 500 Return 0% 7% 84%
Trefis Multi-Strategy Portfolio 0% 8% 241%

[1] Month-to-date and year-to-date as of 4/3/2023
[2] Cumulative total returns since the end of 2016

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