What To Expect From Textron’s Q2?

Textron stock (NYSE: TXT) will report its Q2 2024 results on Thursday, July 18. We expect TXT stock to trade sideways post-Q2, with its revenue and earnings expected to align with the street estimates. The company will likely continue to benefit from higher aircraft and aftermarket volume. Not only do we expect the company to post an in-line Q2 performance, but our forecast indicates that TXT stock has little room for growth. Our interactive dashboard analysis of Textron’s Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter.  So, what are some trends likely to drive Textron’s results, and how has the company’s stock performed?

Firstly, let us look at Textron’s stock performance in recent years. It has seen strong gains of 80% from levels of $50 in early January 2021 to around $90 now, vs. an increase of about 50% 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 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, we think TXT stock has little room for growth. We estimate Textron’s Valuation to be $100 per share, reflecting an upside of just 10% from its current levels of around $91. Our forecast is based on 16x expected 2024 adjusted earnings of $6.27 per share, aligning with the stock’s average P/E ratio over the last three years.

Looking at the previous quarter, Textron reported manufacturing revenues of $3.12 billion, up 3.6% y-o-y. The top-line expansion was primarily driven by the Bell segment, which saw its sales rise by 17% y-o-y. Looking at other segments, Textron Aviation sales were up 3.4%, Textron Systems sales remained flat, while Industrial revenue declined by 4.3% y-o-y. The overall segment profit of $290 million was up 12%. The segment profit margin improved by 69 bps to 9.25% in Q1. Higher revenues and margin expansion aided the bottom line, which grew 14% to $1.20 on an adjusted basis.

Coming to the current quarter, Textron should benefit from increased aftermarket demand. Also, higher jet and turboprop deliveries should bolster the Textron Aviation segment sales. The Bell segment has lately benefited from higher volumes from the Future Long Range Assault Aircraft (FLRAA) program, a trend expected to continue in the near-term. However, the Industrial segment sales growth may remain tepid due to lower volume for the company’s specialized vehicles product line.

Overall, we think Textron’s Q2 performance will align with the street expectations and from a valuation perspective, we see only a little room for growth. However, if the company were to report an upbeat Q2 and raise its outlook, the stock will likely see higher levels post the results announcement.

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 7/15/2024
[2] Cumulative total returns since the end of 2016

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