Our Industrials analyst Jay Van Sciver is hosting a special call today at 12:30pm ET to discuss the Textron (TXT) activist case and long thesis. He will be joined by Hedgeye Defense Policy head, LtGen Emerson "Emo" Gardner USMC ret. to provide a multifaceted view of Textron’s longer-term prospects. They will look at why Textron has lagged and what must improve.
We think the stock has 60+% upside on just these initiatives.
Email sales@hedgeye.com for more information.
a quick Overview
Our activist (or self-help) thesis for Textron is straightforward: Cut R&D to typical industry levels, and direct investment on existing markets in which it is exceptionally well positioned. We believe the retained R&D spend would be better deployed in buybacks, with the combined benefit of adding roughly $1.00 to EPS.
For context, TXT is expected to earn just shy of $2.50/share this year, and earnings growth should help eliminate TXT’s valuation discount. We’d expect that scenario, which TXT can largely control, to generate a share price north of $80/share … up over 60% just as the V-280 and V-247 programs are hitting investor horizons. Oh, and tax reform is likely to be extremely good for TXT. We see very few equivalent long opportunities heading into 2018.
Holders Are Restless: Textron shareholders are overwhelmingly frustrated. The shares have lagged competitors and trade at a discount to its industry. The company has excellent prospects, but better returns are always a just a few years away. Where to start? Trim the bloated R&D budget that has plowed potential profits into projects with dubious returns like the Scorpion & 525 Relentless, among others. The excessive R&D spend has not clearly and transparently helped investors; if there were a good story to tell on returns, we suspect we would have heard it.
Oh, And Tax Reform Is Likely To Be Great For Textron: What typically correlates to after-tax corporate profits? Business jet sales! Does press around Jeffrey Two-Jets at GE hurt the outlook? We’d guess that only made other management teams jealous, lowering the jet usage propriety bar.
Email sales@hedgeye.com for more information.
