Textron Inc (TXT, Financial) recently experienced a 10.41% gain, with an Earnings Per Share (EPS) of 4.05. These figures naturally raise the question: is Textron's stock fairly valued? Let's delve deeper into a comprehensive valuation analysis of Textron (TXT) to answer this question.
Company Overview
Textron Inc is a multifaceted conglomerate that designs, manufactures, and services specialty aircraft for a variety of markets. Its aviation segment includes the manufacturing and servicing of Cessna and Beechcraft business aircraft. Textron's Bell division caters to both commercial and military markets as a helicopter manufacturer and servicer. Additionally, Textron Systems produces uncrewed aircraft, armored vehicles for the military, and aircraft simulators for commercial and military markets. The company also owns Textron Industrial, which manufactures plastic fuel tanks for conventional and hybrid vehicles, and produces specialized vehicles such as golf carts, snowmobiles, and all-terrain vehicles.
The current stock price of Textron (TXT, Financial) is $75.52, with a market cap of $15.2 billion. The company's GF Value, an estimation of its fair value, is $71.87. This comparison provides a foundation for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price significantly deviates from the GF Value Line, it indicates that the stock may be over or undervalued, affecting its future returns.
Based on GuruFocus' valuation method, Textron (TXT, Financial) appears to be fairly valued. This suggests that the long-term return of Textron's stock is likely to be close to the rate of its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength poses a high risk of permanent capital loss. To mitigate this risk, it's essential to review a company's financial strength before purchasing shares. Textron's cash-to-debt ratio is 0.51, ranking worse than 53.26% of companies in the Aerospace & Defense industry. However, with an overall financial strength score of 7 out of 10, Textron's financial health is deemed fair.
Profitability and Growth
Investing in profitable companies generally carries less risk. Textron has been profitable for 10 out of the past 10 years, with revenues of $12.9 billion and EPS of $4.05 in the past 12 months. Moreover, its operating margin of 6.73% is better than 54.77% of companies in the Aerospace & Defense industry. However, Textron's 3-year average revenue growth rate is worse than 55.38% of companies in the same industry. Its 3-year average EBITDA growth rate of 2.5% ranks better than 51.77% of companies in the Aerospace & Defense industry.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another effective way to evaluate its profitability. In the past 12 months, Textron's ROIC was 5.63, while its WACC came in at 9.45.
Conclusion
In conclusion, Textron (TXT, Financial) stock appears to be fairly valued. The company's financial condition is fair, its profitability is fair, and its growth ranks better than 51.77% of companies in the Aerospace & Defense industry. For more information about Textron stock, check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out GuruFocus High Quality Low Capex Screener.
