Textron, which makes defense aerospace systems such as airplanes and helicopters, has reached absolute new heights in recent months thanks to rising margins and sales. We look at what potential the company still holds in this analysis.

The company is divided into several major divisions, including Textron Aviation, which specializes in the production of Cessna and Beechcraft aircraft. Another major division is Bell, which focuses on manufacturing helicopters and other aircraft systems. Textron Systems supplies defence systems and advanced technologies for military applications. The Textron Industrial division manufactures vehicles and industrial products, including brands such as E-Z-GO and Jacobsen.

Textron is known for its innovation and strong market presence in aerospace, military technology and industrial products. With a long history and an extensive product portfolio, it ranks among the major players in the industrial sector.

Interesting fact: In 1960, the company launched the first truly successful electric golf cart under the brand name E-Z-GO. This innovative product dramatically changed the way people move around golf courses and E-Z-GO has become one of the best known golf trolley manufacturers in the world.

Management

Scott C. Donnelly - CEO

Scott is chairman, president and chief executive officer of Textron Inc. He joined the company in July 2008 as Executive Vice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in January 2009. He became Chief Executive Officer in December 2009 and was elected Chairman of the Board effective September 1, 2010.

Previously, he was President and Chief Executive Officer of General Electric (GE) Aviation, the world's leading manufacturer of large and small jet engines for commercial and military aircraft and a major provider of flight management, control and power management systems. Previously, he served as senior vice president and director of GE Global Research, the world's largest and most diverse industrial research organization. He joined GE in 1989 as a manager. He went on to serve in various leadership roles at the company, including engineering management positions in GE's then Martin Marietta division in both Australia and the United States. In 1995, he moved to GE's Industrial Control Systems division.

Scott was named a GE vice president in 1997, responsible for global technology operations at GE Healthcare. He received a B.S. degree in electrical and computer engineering from the University of Colorado at Boulder. He is a member of the board of directors of Medtronic plc and the National Air and Space Museum and the board of trustees of Bryant University.

Industry/Specialty

Aerospace Engineering: Textron is a major player in the aerospace industry, specializing in the manufacture of small and medium-sized aircraft. It includes renowned brands such as Cessna, known for its business jets and turboprop aircraft, and Beechcraft, which manufactures both civil and military aircraft.

Helicopters and aircraft systems: The Bell division specializes in the manufacture of helicopters, including military and commercial models. Bell is known as a pioneer in helicopter technology, including the famous Bell UH-1 "Huey" model, which played a key role during the Vietnam War.

Defense and Advanced Technologies: $TXT focuses on the development and production of advanced defense technologies and systems, including unmanned aerial vehicles (drones), amphibious vehicles, and smart munitions. This division primarily serves military and security customers worldwide.

Industrial Products and Vehicles: Textron Industrial includes the manufacture of various industrial products, including off-road and commercial vehicles. Brands such as E-Z-GO and Jacobsen fall under this division, with E-Z-GO being one of the best known manufacturers of golf and utility carts.

Company profitability and cash

There was a very positive sentiment on the company's stock ahead of the latest quarterly results, which carried the share price up several percent before the actual announcement of the numbers for the past quarter. Now the price is slightly lower.

The company's market capitalization is currently $16.57 billion. This is one of the highest valuations in the company's history. The highest was in April of this year, when the purchase price per share was still 10% higher. The value of the company was therefore around $18 billion.

The stock split is completely in favor of the market. Only 0.71% of all shares ever issued are privately held. The remaining 186 million shares are held by investors. The company's debt is $3.96 billion and management now has $1.41 billion in cash. So this is not a figure that would significantly hamper the company from a debt perspective.

In 2019, the company's revenue was $13.63 billion. Operating margins were 5.98% at the time, bringing net income to $815 billion. In 2020, when the company was squeezed by pandemics and plant closures, revenues fell to $11.65 billion. Margins fell to just 2.65% and net profit was $309 million. But in recent years, the company has managed to increase its revenue In 2021, it was $12.38 billion and by 2022 it was $12.87 billion. The margins were also increasing and it was 6.02% and 6.69%. The net profit in those years was $746 million and $861 million. Last year, the growth in margins slowed down to 6.73%. Revenue came in at US$13.68 billion and profit was US$921 million.

The company continues to try to get its business into countries other than the United States, but that market remains its largest. In the US, the company earned a total of 9.3 billion in revenue in 2023, which is 68% of its total value. Revenue in Europe then was $1.41 billion or 10.33%. Revenue from other countries and continents accounted for $2.96 billion.

Earnings per share were at $2.45 in 2017. This amount was not enough to beat analysts' estimates by only 0.03%. The company managed to grow significantly for the next two years. EPS got as high as $3.74 by 2019 only to fall to $2.07 in 2020. But this was the lowest earnings per share $TXT hasseen in several years . In fact, it has enjoyed very nice growth over the past three years. In 2021, EPS were $3.3. That was the last year so far that the company failed to beat the market consensus. Earnings per share were $4.01 in 2022 and $5.59 in 2023. Growth shouldn't stop in the coming years, quite the opposite. According to the currently available analysts' outlooks, we can expect that in 2027 EPS could be at $8 and 38 cents.

We haven't seen growth this fast in revenue as we have in earnings per share. But let's start a little bit in the past. In 2017, revenue was $14 billion and $200 million per year. But the company gradually dropped from that figure until it hit $13.63 billion in 2019. Then came the drop to $11.65 billion in 2020, which ended the downward trend in revenue. For the last three years, management has been able to increase revenue. It's slow going, but it's growth. In 2021, revenues were $12.38 billion. Last year, revenue came in at $13.68 billion. That's exactly a billion more than in 2021. Unfortunately for the company, the market expected it to perform slightly better in sales in all three of the last three years. But it's their growth that should accelerate at least a bit in the coming years. By 2027, it is now expected that revenues could reach $16.43 billion.

The reason overall sales have been declining or are at a lower level than a few years ago is mainly because the various sectors in which the company operates are declining. The only one that was able to generate more revenue in 2023 than in 2027 was Textron Aviation. Its value went from $4.69 billion to $5.37 billion over the period.

Sectors

Textron Aviation.

Industrial: off-road and utility vehicles

Textron Bell: Helicopters

Textron Systems: Defence Systems and Technologies

Operating Costs

The company is very good at watching where it spends. This is evidenced by its development in this sector. In 2010, it spent $2.2 billion in one quarter. By 2015, that had only increased to $2.96 billion. The company always has the most expensive last quarter of the year, where it spends the most money. In 2010 it was $2.9 billion and in 2015 it was $3.5 billion. By 2018, the "classic" quarters had ballooned to $3.3 billion, but since then costs have started to gradually decrease. By 2020, the value to run them has fallen to $2.5 billion. In the most recent quarter so far this year, the company spent $3.2 billion.

Dividend

The company currently pays a dividend of 2 cents per share. Shareholders can look forward to this reward every quarter. In total, they will earn 8 cents for the year, which forms a dividend yield of 0.09%. However, the company has been sharing its profits with its stockholders since 1977.

Valuation/Comparison to peers

The company's P/E ratio was 0 in 2010 because the company was not making money. But once it started the next year, the P/E jumped to just under 82. From there, however, it quickly began to fall as the market calculated a more accurate value for the company. By the fall of that year, the P/E was 16.2 points. It stayed around that value until 2017, when it began to rise. This was due to a rapid decline in earnings per share while the stock price continued to rise. Between 2018 and 2020, the valuation stayed below 13 points and has been fairly stable around 18 for the last three years, where it is now.

Rivals

Lockheed Martin $LMT: It was founded in 1995 by the merger of two leading US companies, Lockheed Corporation and Martin Marietta. Lockheed Martin specializes in the development and production of advanced aerospace systems, military aircraft, missile and space technology, and other defense products. Among its best-known products are the F-35 Lightning II fighter aircraft, which are considered among the most advanced combat aircraft in the world, and the F-22 Raptor. The company also plays a key role in space technology, developing and manufacturing satellites, rockets and other technologies for civilian and military use.

The Boeing Comapany $BA: Boeing specializes in manufacturing a wide range of aerospace equipment, including civil transport aircraft, military aircraft, helicopters, satellites, and space systems. Among its best-known products are commercial aircraft such as the Boeing 737, 747, 777 and 787 Dreamliner, which are key models for airlines around the world. In defence, Boeing is known for producing military aircraft such as the F/A-18 Hornet, F-15 Eagle and Apache helicopters. In space technology, Boeing develops and manufactures rocket launchers, spacecraft and satellites. The company is also involved in major projects such as the International Space Station (ISS) and various NASA space exploration programmes.

RTX $RTX: The company specializes in the development and manufacture of advanced technologies for the defense and aerospace industries. The company's key divisions include Raytheon Missiles & Defense, which focuses on missile systems, and Collins Aerospace, which develops and manufactures aerospace systems and components for civilian and military applications. Another important part of RTX is Pratt & Whitney, a division focused on the manufacture of aircraft engines, including those used in commercial and military aircraft. The company is known for its innovations in defense technologies, including radar systems, missile defense, satellite technology and cybersecurity. RTX is also a major supplier of defense equipment to governments and military forces around the world, with long-term contracts with the U.S. Department of Defense.

$TXT - blue, $LMT - black, $BA - orange, $RTX - green

Companies in the arms industry have been getting more contracts in recent years thanks to the Russian conflict, and their stocks have rightfully responded by rising. This isn't just about one company in the daily comparison, which is $BA. This company is mainly focused on commercial flights and is now quite indebted. Its stock is down 51.3% since 2020. On the other hand, $TXT has been the best performer , with its stock up 91.3%. Then, in second and third place, by very small margins, are $LMT and $RTX, with appreciation of 42.9% and 35.4% respectively over the last 4 years and 8 months.

Future plans

Development of the aerospace and defence sector: Textron plans to continue investing in the development of new aerospace platforms and defense technologies. The company will focus on upgrading its existing products such as aircraft and helicopters, as well as developing new technologies that may include advanced unmanned systems and electric vertical takeoff and landing (eVTOL) aircraft.

Expansion in electric and hybrid technologies: $TXT focuses on innovation in electric and hybrid propulsion systems, particularly in the Textron Aviation division. The company seeks to develop more sustainable and efficient aircraft to reduce emissions and operating costs. This line of development is in line with the global push for sustainability and decarbonisation of the aviation industry.

Strengthening global presence: The company plans to focus on expanding in international markets, particularly in Asia and the Middle East, where it sees potential for growth in aerospace and defense technologies. This includes selling its products as well as developing new partnerships and collaborations with local governments and companies.

Innovation in the industrial sector: The company intends to further develop its industrial divisions, including the manufacture of industrial vehicles and technologies. The company will seek to integrate new technologies, such as autonomous systems and advanced robotics, into its products to remain competitive in the global market.

Focus on cybersecurity and digital transformationA: Given the growing importance of digital technologies and cybersecurity, Textron plans to strengthen its capabilities in these areas. This includes investments in advanced security systems and digital solutions that can be integrated into their aerospace and defense products.

Outlook

The company's stock is up 10% year-to-date, and it's now not at the high it was in April. After the latest results, investors could only be reassured that the company is doing well in the market. In fact, it managed to beat earnings per share and didn't even lag a full one percent behind with sales. According to the fair price index on Bulios, the company is still 19.8% below its fair price. If it were to get to that level, which its chart is now very firmly on track to do, one share would sell on the market for $115. But how do Wall Street analysts view this and what are their estimates?

Of the 19 analysts surveyed, 6 of them would buy the stock immediately. Their outlook for the next twelve months is very positive. According to them, the stock could go up by as much as 36.7% to $121. Another 4 would also buy the stock, but their outlook is already a bit more cautious. A rise of less than 17% to $103 per share would be enough for them. However, most, 8 analysts, would leave the stock in the portfolio for now and wait for a higher price. The last analyst would prefer to get rid of the stock. He fears a possible drop, in his opinion, of up to 1.66%. Do you have any companies in this sector or do you hold shares directly in $TXT?

Investing can be risky if you approach it lightly. Bulios does not know your financial situation and therefore does not give specific advice and tips in any case. Stock selection, strategy and portfolio construction is an individual matter, so always educate yourself and perform your own detailed analysis before buying a particular stock.