Textron Inc (TXT, Financial) has recently experienced a daily gain of 5.38%, contributing to its 3-month gain of 20.41%. With an Earnings Per Share (EPS) (EPS) of 4.35, the question arises: Is the stock fairly valued? This article presents an extensive valuation analysis of Textron, providing insights into its intrinsic value, financial strength, profitability, and growth. Read on to delve into the financial intricacies of Textron.
Company Overview
Textron Inc is a conglomerate specializing in the design, manufacturing, and servicing of a diverse range of specialty aircraft. Its aviation segment is renowned for manufacturing and servicing Cessna and Beechcraft planes. Textron Systems, another segment, produces unmanned aircraft and armored vehicles for the military market, along with aircraft simulators and training for commercial and military markets. The company also houses Textron Industrial, which manufactures plastic fuel tanks for conventional and hybrid motor vehicles, and other subsidiaries that produce specialized vehicles such as golf carts, snowmobiles, and all-terrain vehicles.
With a current stock price of $79.71, Textron (TXT, Financial) has a market cap of $15.80 billion. The GF Value, an estimate of the stock's fair value, stands at $77.02, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it indicates overvaluation or undervaluation, thereby affecting its future returns.
As per the GF Value calculation, Textron (TXT, Financial) is believed to be fairly valued. Given its current price of $79.71 per share and a market cap of $15.80 billion, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Hence, it's crucial to thoroughly review a company's financial strength before deciding to buy its stock. Textron's cash-to-debt ratio of 0.5 is lower than 56.51% of 292 companies in the Aerospace & Defense industry, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Higher profit margins generally indicate a better investment compared to a company with lower profit margins. Textron has been profitable 10 over the past 10 years. Its operating margin is 7%, ranking better than 52.78% of 288 companies in the Aerospace & Defense industry, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Textron's 3-year average revenue growth rate is lower than 55.89% of 263 companies in the Aerospace & Defense industry. However, its 3-year average EBITDA growth rate of 2.5% ranks better than 52.81% of 231 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) offers another way to evaluate its profitability. Over the past 12 months, Textron's ROIC was 5.86, while its WACC came in at 10, indicating the company's ability to generate cash flow relative to the capital it has invested in its business.
Conclusion
Overall, Textron (TXT, Financial) is believed to be fairly valued. The company's financial condition and profitability are fair, and its growth ranks better than 52.81% of 231 companies in the Aerospace & Defense industry. For more information about Textron stock, check out its 30-Year Financials here.
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