EUR 850.00 For Business Accounts Only

Morningstar | Textron Is Introducing the Longitude Business Jet in 2019 While Cleaning Fleas Off Arctic Cat

Textron makes a wide array of products, including business jets, piston and turboprop aircraft, civil and military helicopters, unmanned aircraft, military munitions, motorized aircraft tugs, recreational and golf vehicles, and simulation and training solutions. Management organizes its business into four segments: Textron Aviation, Bell Helicopter, Textron Systems, and industrial. The Aviation and Bell segments are the largest, which combined account for just over 60% of our forecast 2019 revenue. The company also operates a small, captive finance arm.The financial crisis hit Textron hard because of its business jet exposure and the size of its finance arm, which stood at over $8.6 billion in receivables. In response to the downturn and its deteriorating portfolio of assets, the company scaled back its financing activities, which now only supports Textron sales. We appreciate the focus on the manufacturing business and applaud the recent move to divest the $470 million tools and test equipment business line. However, we think Textron still has its hands full: Bell is developing the 525 helicopter for commercial customers and the V-280 for the U.S. military; the company is launching the Longitude business jet and is working on two new turboprops; management is also self-funding a military attack aircraft (Scorpion); and the company continues to pursue mergers and acquisitions, as demonstrated by its acquisition of Arctic Cat in 2017. Moreover, we question the logic of owning Kautex, a supplier of automotive fuel tanks, due to automotive growth headwinds combined with Textron's increasing aerospace and defense focus. Although new products like the Longitude business jet should boost revenue in the aviation business, Bell will likely experience headwinds in its military activities from a V-22 production decrease and the H-1 ramping down toward the end of this decade. Textron Systems has also faced growth headwinds as well. These uncertain growth prospects plus Textron's multitude of ongoing R&D efforts leads to a wide spread between our bull and bear cases and a high uncertainty rating on our valuation.