Multi-industry concern Textron Inc. (TXT) is known for its powerful brands Bell, Cessna, Beechcraft, and Arctic Cat, to name a few. The company was hit severely by the COVID-19 pandemic as demand for aviation vehicles and related services fell sharply. However, the stock has gained 91.9% over the past year and is expected to continue its impressive performance as travel restrictions are eased further.

The stock hit its all-time high of $55.70 on March 12 as several investors moved to capitalize on its forthcoming quarterly dividend (payable on April 1, 2021) that will be paid to shareholders of record as of March 12.

Also, Bell Textron Inc.’s Bell 505 received the European Union Aviation Safety Agency (EASA) certification at the end of 2020 and delivered the first EASA certified 505 NXi to a corporate customer in Europe last month.

Here’s what we think could shape TXT’s performance in the near-to-midterm:

Increasing Demand for TXT’s Aircrafts

TXT’s Textron Aviation in February delivered a Beechcraft King Air 350i aircraft that is expected to undergo further modifications in Japan, including a medical configuration. The aircraft  is expected to enter service as a liaison/reconnaissance (LR-2) aircraft owned and operated by the Japan Ground Self Defense Force (JGSDF).

Air Archipels of Tahiti awarded a contract to Textron Aviation for one Beechcraft King Air 260 and one cargo door equipped King Air 260C aircraft. They  are expected to be delivered in the second half of 2021. In addition,  TXT’s Textron Systems Corporation announced in December 2020 the sale of 36 Shadow aircraft to the U.S. Army in the latest Block III configuration.

Sequential Improvement Across All Segments

TXT’s total revenues increased 34.1% sequentially to $3.67 billion for its  fiscal 2020 fourth quarter, ended January 2, 2021. Its revenue from its Textron Aviation segment increased 96.2% sequentially to $1.56 billion for the quarter, while  its revenue  from its Bell segment increased 9.8% sequentially to $871 million. Also, TXT’s revenue from the Textron Systems, and Industrial segments increased 18.2% and 4.1%, respectively, on a sequential basis.

Favorable Analyst Estimates

Analysts expect TXT’s revenue to increase 18.9% for the quarter ending June 30, 2021 and 7.3% in its fiscal 2022. Its EPS is expected to grow 35.7% in its fiscal 2021, 22.1% in its fiscal 2022 and at a rate of 22.5% per annum over the next five years.

Reasonable Valuation

In terms of its forward non-GAAP price/earnings ratio, TXT’s 19.13x is 15.2% lower than the industry average  22.55x. In terms of forward price/sales ratio, the stock’s 0.98x is also lower than the industry average  1.60x. Also, , the stock’s forward enterprise value/sales of 1.19x is lower than the industry average  2.02x.

Favorable POWR Ratings

TXT has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TXT has a B grade  for growth also, which is  consistent with analysts’ expectation that its revenue and EPS will increase in the near-to-midterm.

The stock also has a B grade for Value, in sync with its lower-than-industry valuation ratios.

Click here to see the additional POWR ratings for TXT (Momentum, Stability, Sentiment and Quality).

TXT is ranked #9 of 66 stocks in the Air/Defense Services industry.

Click here to access sixteen other top-rated stocks in the same industry.

Bottom Line

As more people are  vaccinated against COVID-19 , investors remain hopeful for  a fast return to normalcy. We expect TXT  to gain in the long run as demand in the aviation industry gradually  rises. So, we think it could  be rewarding to buy the stock now because  it is trading at a discount to its peers.

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TXT shares were trading at $56.49 per share on Thursday afternoon, up $1.06 (+1.91%). Year-to-date, TXT has gained 16.93%, versus a 5.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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