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Textron: The Largest Company You've Never Heard Of

industrials portfolio strategy Jul 22, 2021

Textron Overview:

Today we're bringing you a new stock pick in the form of Textron. Never heard of them? Textron recently ranked 208th on the 2018 Fortune 500 list of the largest United States Corporations by Revenue. What do they do? They're an industrial conglomerate primarily engaged in creating aircraft and manufacturing in the aerospace sector. Their subsidiaries include Arctic Cat, Bell Textron, Textron Aviation (which itself includes the Beechcraft, Hawker, and Cessna brands), and Lycoming Engines.


They're a giant in their domain, yet fly under the radar:

And guess what? They're completely dominating business jet deliveries! Last year alone they delivered 130,000,000 jets. Looking at their competitors the next closest ones came in at 127M, 114M & 86M, respectively. And the best has yet to come! They've signaled that they are forecasting increased strength as macro tailwinds are starting to move in their favor.


Let's break down what those forces are:

  • What they and other manufactures are seeing is a strong shift in the underlying demand for business jets. They've started to see a massive pickup in orders and they believe this trend will continue. The reason? Because as travel picks back up, with the new normal, most executives do not want to fly commercial ever again! Privacy is becoming more important than ever and with that, the private jet industry stands to drastically benefit!
  • Not only is the shift happening for new buyers but existing and previous buyers are coming back for me! With a shortage of aircraft available (shortages happening across multiple sectors as well) this is causing a massive pent up in demand for these two different types of buyers. With travel starting to resume, we forecast global demand for their products too far outpace supply for the foreseeable future.

The interior of one of their private jets

The last layer no one is talking about is the tax benefits of private jets with the Trump tax plan. The plan states that individuals and companies can now write off 100% of the cost of a new or used private jet against their federal taxes!
  • Yes you read that right! Some of the private jets offered by Textron can be upwards of $50,000,000. That means that if you bought one of their planes you could reduce your tax bill by the same amount. That benefit alone makes it worth it to buy the planes now for the ultra-wealth and business class! However it is speculated that this benefit may end by 2023, so we are forecasting a massive spike in demand for these jets for the next few years!

So now that we've broken down the macro tailwinds coming their way. Let's discuss what this means for the company specifically.


Stock Outlook:

So now that it is clear that customers are incentivized now more than ever to buy new jets. What is benefitting Textron specifically is the lack of availability of their planes on the aftermarket. Because of the supply drawbacks, this opens up a new door for them to start outproducing their competition as soon as possible.

What is that door? It is an increase in pricing power!

With no where else to turn, we anticipate that Textron will be able to raise prices, thus increasing their margins substantially.

As we've discussed historically, margins is the key to any business. With enhanced margins, Textron is able to squeeze out more profit per plane as the cost of producing them stays fixed over time. This is a significant inflection point for them that they've historically never been able to enjoy. The combination of the macro tailwinds combined with this newfound pricing power should push Textron into a new growth vector!

Textron's more affordable business line: The Cessna

The last thing that will help out their outlook is the deposit requirements that they are changing for their new plane purchasers. Historically, they've only forced customers to put down $250K per plane (regardless of the sticker price) and now that is being pushed up to 10-20% of the entire purchase price within the first 60 days. Having increased cash on hand this fast will lead to an outcome where Textron can use that cash to increase investments elsewhere.

The overall decrease in the time it takes to get assets in the bank, also increases their operating capabilities! By having more cash on hand, they will be able to pay their own suppliers faster, thus increasing their overall production speed! This is a huge win for them.



The upside here is clear. Textron is entering into a once in a blue moon cycle where the macro is lining up nicely with the internal company dynamics. This fundamental shift should allow for solid growth over the next few years (even with increasing margins). We thereby increase our existing growth assumptions and arrive at a price target of $84 using our DCF (discounted cash flow) analysis.



Rating: Overweight

Price Target: $84 (22% upside from the current price)

Target Date: 5-8 Months