On Friday, UBS took a cautious stance on Textron (NYSE:TXT), with its analyst reducing the company's price target to $79 from $87 while keeping a Sell rating on the stock. The adjustment follows Textron's third-quarter earnings miss and a downward revision of its earnings per share (EPS) and free cash flow (FCF) forecasts. This revision is attributed to the adverse effects of a recent strike, which impacted both the third and fourth quarters.
Textron anticipates a rebound in 2025, with Aviation revenue expected to surpass the initial 2024 projections as aircraft delivery rates increase. The company predicts that the strike's disruption in 2024 will have minimal impact on margins by 2025. However, UBS forecasts that rising wage inflation and a narrowing gap between gross price and cost will likely dampen the potential for a strong recovery.
In other segments of Textron's operations, Bell exhibited improved performance, prompting UBS to increase its future estimates for that division. Nevertheless, this positive adjustment is overshadowed by projected declines in both revenue and margins in the Industrial sector. The analysis by UBS suggests that the business jet segment remains a significant factor influencing Textron's stock value.
The report also highlights concerns over the aviation cycle, noting that while this year's bookings could have supported a 1.0X book-to-bill ratio based on the original Aviation revenue guidance, expectations of higher revenue and a declining book-to-bill ratio, along with a shrinking backlog, may contribute to longer-term cycle risks that could pressure the stock. UBS maintains its Sell rating on Textron, signaling skepticism about the company's stock performance in the face of these challenges.
In other recent news, Textron Inc (NYSE:TXT). reported mixed results in its third quarter of 2024 earnings call. The company's revenues saw a slight uptick to $3.4 billion from $3.3 billion in the same quarter of the previous year. However, adjusted income from continuing operations fell to $1.40 per share, a decrease from $1.49 per share a year earlier. A four-week strike in the Aviation segment ended with a new contract but is expected to significantly impact the financial results of 2024.
The company's Bell segment, however, showcased growth with revenues increasing to $929 million and a backlog growth attributed to the progression of the FLRAA program. On the other hand, the Industrial revenues saw a decline due to lower demand in Specialized Vehicles. The company also announced executive changes with CFO Frank Connor retiring and David Rosenberg stepping in.
Textron has revised its adjusted EPS for 2024, expecting it to be between $5.40 and $5.60, down from the previous forecast of $6.20 to $6.40. Despite the challenges faced, the company anticipates a healthy revenue progression in 2025. These are some of the recent developments in the company.
InvestingPro Insights
In light of UBS's cautious stance on Textron (NYSE:TXT), it's worth considering some additional financial insights. According to InvestingPro data, Textron's market capitalization stands at $15.12 billion, with a P/E ratio of 19.04. Despite the recent challenges, the company has shown resilience with a revenue of $13.98 billion over the last twelve months as of Q3 2024, representing a 4.13% growth.
InvestingPro Tips highlight that Textron has maintained dividend payments for an impressive 54 consecutive years, demonstrating long-term financial stability. Additionally, the company operates with a moderate level of debt, which could provide some flexibility as it navigates the current headwinds.
However, it's important to note that 7 analysts have revised their earnings downwards for the upcoming period, aligning with UBS's concerns. The stock has also taken a significant hit over the last week, with a 1-week price total return of -9.51% as of the latest data.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Textron, providing a deeper understanding of the company's financial health and market position.
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