Aircraft Manufacturing Stocks

Textron Inc Valuation – June 2016 $TXT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Textron Inc (TXT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Textron Inc. is a multi-industry company engaged in aircraft, defense, industrial and finance businesses to provide customers with products and services across the world. The Company operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Textron Aviation manufactures, sells and services Beechcraft and Cessna aircraft, and services the Hawker brand of business jets. Bell Helicopter is a supplier of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in the world. Textron Systems segment’s product lines consist of unmanned aircraft systems, marine and land systems, weapons and sensors, and simulation, training and other defense and aviation mission support products and services. The Industrial segment designs and manufactures a range of products under three principal product lines. The Finance segment provides financing to purchasers of Textron Aviation aircraft and Bell helicopters.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of TXT – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,678,944,461 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.75 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 33.15% Fail
6. Moderate PEmg Ratio PEmg < 20 15.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.97 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.27 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

TXT value chart May 2016

EPSmg $2.33
MG Growth Estimate 15.00%
MG Value $89.55
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $33.73
MG Value based on 0% Growth $19.77
Market Implied Growth Rate 3.47%
Current Price $35.91
% of Intrinsic Value 40.10%

Textron Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2012 to an estimated $2.33 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.47% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Textron Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

TXT charts June 2016

Net Current Asset Value (NCAV) -$12.15
Graham Number $32.81
PEmg 15.44
Current Ratio 1.75
PB Ratio 1.97
Current Dividend $0.08
Dividend Yield 0.22%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $6,792,000,000
Total Current Liabilities $3,877,000,000
Long-Term Debt $3,688,000,000
Total Assets $15,099,000,000
Intangible Assets $2,114,000,000
Total Liabilities $10,110,000,000
Shares Outstanding (Diluted Average) 273,022,000

Earnings Per Share History

Next Fiscal Year Estimate $2.60
Dec2015 $2.50
Dec2014 $2.13
Dec2013 $1.75
Dec2012 $2.00
Dec2011 $0.79
Dec2010 $0.28
Dec2009 -$0.12
Dec2008 $1.95
Dec2007 $3.60
Dec2006 $2.31
Dec2005 $0.75
Dec2004 $1.31
Dec2003 $0.95
Dec2002 -$0.45
Dec2001 $0.58
Dec2000 $0.75
Dec1999 $7.24
Dec1998 $1.84
Dec1997 $1.65
Dec1996 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.33
Dec2015 $2.07
Dec2014 $1.70
Dec2013 $1.30
Dec2012 $1.05
Dec2011 $0.81
Dec2010 $1.09
Dec2009 $1.56
Dec2008 $2.26
Dec2007 $2.20
Dec2006 $1.33
Dec2005 $0.76
Dec2004 $0.72
Dec2003 $0.89
Dec2002 $1.24
Dec2001 $2.20
Dec2000 $2.82

Recommended Reading:

Other ModernGraham posts about the company

13 Best Stocks For Value Investors This Week – 12/12/15
Textron Inc Valuation – December 2015 Update $TXT
19 Best Stocks For Value Investors This Week – 8/29/15
Textron Inc. Analysis – August 2015 Update $TXT
The 12 Best Stocks For Value Investors This Week – 5/30/15

Other ModernGraham posts about related companies

Boeing Company Valuation – June 2016 $BA
Textron Inc Valuation – December 2015 Update $TXT
Boeing Company Valuation – November 2015 Update $BA
Textron Inc. Analysis – August 2015 Update $TXT
Boeing Company Analysis – August 2015 Update $BA
Textron Inc. Quarterly Valuation – May 2015 $TXT
Boeing Company Quarterly Valuation – May 2015 $BA
Boeing Company Quarterly Valuation – February 2015 $BA
Textron Inc. Quarterly Valuation – February 2015 $TXT
Boeing Company Quarterly Valuation – November 2014 $BA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top