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Should You Buy Textron Stock on the Dip?

Despite the shares of Textron (TXT) having plunged 13.5% in price over the past month, the company is making efforts to boost its operational performance through its diversified brand portfolio. So, let's evaluate if it is wise to bet on the stock at its current price level.

Textron Inc. (TXT) in Hamilton, Bermuda, is a multi-industry company that provides creative solutions and services to clients via its global aerospace, defense, industrial, and financial companies. The company is well-known for its prominent brands, including Bell, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Arctic Cat, Textron Systems, and TRU.

The company's shares have surged 42.3% in price over the past year. Closing yesterday's trading session at $67.24, the stock is currently trading 15.1% below its 52-week high of $79.24.

TXT's board of directors authorized a buyback of up to 25 million shares. The business expects to purchase stock to offset the impact of dilution from stock-based compensation and benefit plans, as well as for opportunistic capital management objectives. In addition, TXT has raised its revenue outlook for 2022 to $13.3 billion from $12.4 billion, reflecting robust growth across each segment.

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

Positive Development

This month, Textron Aviation, a TXT company, announced the completion of the first production unit of the Cessna SkyCourier, a twin-engine, large-utility turboprop, at the company's Wichita factory. The innovative, clean-sheet design has enabled the adoption of the most recent state-of-the-art assembly and fabrication methods and techniques in the aircraft's manufacture.

Impressive Growth Prospects

The Street expects TXT's revenues and EPS to rise 7.9% and 20.5%, respectively, year-over-year to $11.82 billion and $3.52 in fiscal 2022. In addition, TXT's EPS is expected to rise at a 23.6% CAGR over the next five years. Moreover, the company's revenue is expected to grow 6.5% year-over-year to $12.59 billion.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 16.71x, which is 11.7% lower than the 18.93x industry average. Also, its 1.25x forward EV/Sales is 32.7% lower than the 1.85x industry average. Moreover, TXT's 2.03x forward Price/Book is 24% lower than the 2.67x industry average. 

Consensus Rating and Price Target Indicate Potential Upside

Of the six Wall Street analysts that rated TXT, five rated it Buy, and one rated it Hold. The 12-month median price target of $87 indicates a 29.4% potential upside. The price targets range from a low of $75.00 to a high of $95.00.

POWR Ratings Reflect Solid Prospects

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

Our proprietary rating system also evaluates each stock based on eight distinct categories. TXT has a B grade for Quality and Value. TXT's solid earnings and revenue growth potential is consistent with the Quality grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.

Among the 74 stocks in the Air/Defense Services industry, TXT is ranked #16.

Beyond what I stated above, we have graded TXT for Sentiment, Growth, Stability, and Momentum. Get all TXT ratings here.

Bottom Line

TXT has exhibited strong momentum over the past year and robust growth across the aviation segment. In addition, given favorable analysts' sentiments and the company's discounted valuation, the stock could deliver solid gains in the near term. So, we think it could be wise to bet on the stock now.

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

TXT has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Air/Defense Services industry with B (Buy) ratings: Moog Inc. (MOG.A), Lockheed Martin Corp. (LMT), and Brady Corporation (BRC).

TXT shares were unchanged in premarket trading Monday. Year-to-date, TXT has declined -12.90%, versus a -5.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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