Textron Inc. (NYSE: TXT) is a diversified conglomerate operating in various industries, including defense, aviation, industrial products, and more. It boasts renowned brands such as Bell and Cessna.
Despite a recent 10% stock decline following its Q1 2024 earnings report, Textron remains an attractive investment opportunity. The company’s non-GAAP earnings slightly missed analyst estimates by $0.03, while revenues grew 3.3% year-over-year. Textron expects to earn $6.20 to $6.40 per share in 2024, and analysts project significant earnings growth in the coming years.
Textron’s stock currently trades at a price-to-earnings ratio of just over 13 times for 2024, making it undervalued compared to industry peers such as General Dynamics and Lockheed Martin. These companies enjoy wide moats in defense contracting and aviation, similar to Textron’s businesses.
Moreover, Textron has a strong balance sheet with $4.26 billion in debt and $2.12 billion in cash. It has consistently repurchased shares, with $317 million in buybacks during Q1 2024 alone.
Textron’s diverse businesses include Bell, known for military and commercial helicopters; Cessna, a leading manufacturer of turboprops and business jets; Beechcraft, which produces piston-engined planes and turboprops; E-Z-Go, a maker of golf carts and personal vehicles; Cushman, offering utility vehicles for businesses and golf courses; and Arctic Cat, producing snowmobiles and all-terrain vehicles.
Analysts believe Textron’s businesses could be worth more if spun off or sold, creating substantial value for shareholders. The company’s technical indicators suggest an oversold condition, with the stock trading near its 200-day moving average.
A buying strategy at or close to the $81-$82 price range is recommended, with the potential to earn additional income via put option sales at the $80 strike price.
While defense budget cuts pose a potential downside risk, Textron’s diversified business portfolio mitigates this concern. Foreign exchange fluctuations and product liability risks are also factors to consider. However, a recession could significantly impact Textron’s businesses, leading to reduced capital expenditures and consumer spending.
Overall, Textron’s undervalued stock, strong balance sheet, and potential for value creation through spinoffs or sales make it an attractive investment. Its diverse businesses and consistent share buyback program add to its appeal. Despite the recent earnings miss, Textron remains a solid buying opportunity, especially after its post-earnings pullback.
