Aerospace and defense company Textron Inc. (TXT) operates in the aircraft, defense, industrial, and finance businesses. Its segments include Textron Aviation; Bell; Textron Systems; Industrial; and Finance.

On May 9, 2022, TXT made its first delivery of the Cessna SkyCourier twin utility turboprop to shipping giant FedEx Express. TXT’s collaboration with FedEx, a company offering premier service to customers for almost 50 years, aims to boost consumer satisfaction by broadening its reach across small and medium markets apart from the larger ones.

Over the past month, TXT has lost 2% to close yesterday’s trading session at $62.94. However, Wall Street analysts expect the stock to hit $85.00 soon, indicating a potential upside of 35.1%.

Here is what could shape TXT’s performance in the near term:

Strong Financials

For the first quarter ended April 2, 2022, TXT’s total revenues increased 4.2% year-over-year to $3 billion. Its Textron Aviation segment profit came in at $121 million, up 157.4% year-over-year, while its overall segment profit soared 18.8% year-over-year to $304 million. In addition, the company’s net income came in at $193 million, up 12.9% year-over-year. Also, its EPS came in at $0.88, up 17.3% year-over-year.

Attractive Valuations

TXT’s forward EV/S of 1.16x is 28.2% lower than the industry average of 1.62x. In terms of forward P/S, its 1.01x is 20.8% lower than the industry average of 1.27x.

Furthermore, the stock’s forward EV/EBITDA of 9.84x is 2.2% lower than the industry average of 10.06x, while its forward non-GAAP P/E of 15.62x is 2.5% lower than the industry average of 16.02x.

Favorable Analyst Expectations

Analysts expect TXT’s revenue to increase 14.9% year-over-year to $3.19 billion for the quarter ending September 2022. In addition, its revenue is estimated to grow 12.9% year-over-year to $12.73 billion in 2022. Also, its EPS is expected to grow 26.3% from the prior year to $3.79 in 2022. Moreover, its EPS is estimated to increase 23.6% per annum for the next five years. The stock surpassed EPS estimates in three of the four trailing quarters.

Among the six Wall Street analysts that rated TXT, four rated it Buy, while two rated it Hold. The 12-month median price target of $85.00 indicates a 40.1% potential upside. The price targets range from a low of $74.00 to a high of $95.00.

POWR Ratings Reflect Solid Prospects

TXT has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value, consistent with its lower-than-industry valuation multiples. TXT has a C grade for Stability, in sync with its 24-month beta of 1.14.

In the 77-stock Air/Defense Services industry, TXT is ranked #2.

Click here for the additional POWR Ratings for TXT (Growth, Momentum, Sentiment, and Quality). View all the top stocks in the Air/Defense Services industry here.

Bottom Line

TXT has registered solid performance in its last reported quarter, and analysts expect its revenues and EPS to grow further this year. Also, the stock looks undervalued at its current price. So, I think investors should buy the dip in TXT, given its upside potential.

How Does Textron Inc. (TXT) Stack Up Against its Peers?

While TXT has an overall POWR Rating of A, one might consider looking at its industry peer, Moog Inc. (MOG.A), which has an overall A (Strong Buy) rating, and Brady Corporation (BRC), which has an overall B (Buy) rating.

TXT shares were trading at $60.41 per share on Monday afternoon, down $2.53 (-4.02%). Year-to-date, TXT has declined -21.44%, versus a -19.90% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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