What’s Next For Textron Stock After 10% Gains This Year?

Textron (NYSE: TXT) reported its Q4 results last month, with the top line aligning and the bottom line beating the street estimates. The company reported revenues of $3.9 billion and adjusted earnings of $1.60 per share, compared to the consensus estimate of $3.9 billion and $1.53, respectively. TXT stock has gained over 10% this year, and we believe that it has little room for growth. In this note, we discuss Textron’s stock performance, key takeaways from its recent results, and valuation.

TXT stock has seen extremely strong gains of 80% from levels of $50 in early January 2021 to around $90 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the increase in TXT stock has been far from consistent. Returns for the stock were 60% in 2021, -8% in 2022, and 14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TXT underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TXT face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, TXT stock looks like it has little room for growth. We estimate Textron’s Valuation to be $95 per share, reflecting an upside of just 5% from its current levels of around $90. Our forecast is based on 1.3x revenues for Textron, aligning with the average value over the last three years. We expect 2024 sales to be around $14.6 billion for the company and earnings of $5.82 per share, compared to $13.7 billion in sales and $4.57 earnings per share in 2023.

Textron’s revenue of $3.9 billion in Q4, reflecting a 7% y-o-y rise, was primarily driven by the Bell segment, up 31%.  This can be attributed to increased deliveries that aided commercial sales. The company also benefited from higher military revenues from the Army Future Attack Reconnaissance Aircraft (FARA) program. The Aviation segment revenue declined 4% due to fewer deliveries of jets and commercial turboprops. Industrial sales were up 6% led by increased Kautex sales. Looking forward, the company expects its sales to be around $14.6 billion and earnings in the range of $5.62 and $5.82 on a reported basis in 2024. The company will likely continue to benefit from higher deliveries and contribution from the FARA program. Its backlog also increased to $13.9 billion by the end of 2023, versus $13.3 billion in 2022.

We think much of these positives are already priced in, given that TXT stock is already trading at 1.2x revenues (versus three-year average of 1.3x). We think investors will likely be better off waiting for a dip to enter TXT stock for robust long-term gains.

While TXT stock looks like it has little room for growth, 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.

[1] Returns as of 3/1/2024
[2] Cumulative total returns since the end of 2016

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