Textron Drifting, As Its Main Drivers Now Are Outside Of Its Control

Wall Street isn’t a sentimental place, but I can empathize if Textron (NYSE:TXT) management and investors are a little frustrated with the circumstances around this aviation company. Supply chain issues are preventing the company from producing Cessna bizjets at targeted rates, while the wait goes on for a major military award that will play a significant role in the future of the company’s helicopter business.

These shares have fallen almost 10% since my last update, underperforming the broader industrial space and other aerospace-leveraged names like General Dynamics (GD), Honeywell (HON), and Lockheed Martin (LMT), and only doing a little better than Boeing (BA). I do have some concerns that expectations for the bizjet cycle are getting too bullish, but I believe Textron can still generate long-term revenue growth in the neighborhood of 5% and the shares look more interesting on that basis, but there’s above-average risk here right now.

 

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Textron Drifting, As Its Main Drivers Now Are Outside Of Its Control

Textron's Bizjet Business Shouldering More And More Of The Growth Load

 

One of the advantages of a conglomerate strategy is that cyclically strong businesses can offset cyclically weak businesses, leading to at least a little less volatility over the full cycle. The catch, though, is that sooner or later all of the businesses have to pull their own weight. That’s my main issue with Textron (NYSE:TXT) right now – while the bizjet business (Aviation) is performing well and set up for multiple years of good performance, the Bell helicopter business is in a transition period and the Industrial segment has been a chronic underachiever.

There are potential sources of upside, including the possibility of a significant military project win for Bell, but my main concerns are that the bizjet recovery is already priced in and that a meaningful turnaround in Industrial is a lower-probability event. I can see, maybe, upside into the low $80’s today, but that’s not enough to get me really interested in the stock.

 

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Textron's Bizjet Business Shouldering More And More Of The Growth Load

Seeking Alpha: Erickson Air-Crane Has Scarcity, But Value Is Difficult To Judge

Every so often, an investor will set out to research a company expecting to find a certain type of company and find something completely different. That happens to be the case with me and Erickson Air-Crane (EAC). I originally began my research here thinking I was going to be looking at a small specialty aircraft manufacturer, but instead found myself looking at an increasingly diversified heavy-lift and helicopter service specialist.

Erickson certainly has some interesting points going for it. It is one of the largest providers of helicopter-based heavy lift services in the country, and management is focused on diversifying and maximizing the company's revenue opportunity. While I think consolidation and diversification can deliver interesting growth in the years to come, the debt-heavy balance sheet throws a few kinks into the valuation analysis.

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Erickson Air-Crane Has Scarcity, But Value Is Difficult To Judge

Investopedia: Orders Will Be The Wind Beneath Boeing's Wings

The run in commercial aerospace is on, and both Boeing (NYSE:BA) and EADS' Airbus will be spending the next few years delivering on an incredible backlog of commercial aviation orders. While there is still some reason to worry about the quality of the emerging market order book, Boeing has a rare opportunity to book several banner years of revenue and cash flow.

Read more here:
http://stocks.investopedia.com/stock-analysis/2012/Orders-Will-Be-The-Wind-Beneath-Boeings-Wings-BA-UTX-TXT-GD0430.aspx

Investopedia: Will United Technologies Land Goodrich?

The economy may be slowing and Europe may still be smoldering, but none of that precludes good ol' fashioned buyout speculation. The latest big-deal rumors swirl through the aerospace industry, where United Technologies (NYSE:UTX) is widely rumored to be trying to strike a deal to acquire aircraft parts and components manufacturer Goodrich (NYSE:GR).


The Deal That May Be
If rumors are true, United Technologies has been busy lining up many billions in financing to launch a bid (rumors range from $10 billion to $20 billion). As it pertains to Goodrich, the target price for a deal seems to be in the range of $110 to $125 - prices that would be from 18 to 35% higher than Friday's close (a close that was bolstered by the deal rumors hitting the market on Friday).

Taking the midpoint of that range, United Technologies would be paying about 12 times trailing EBITDA for Goodrich. Though there have not been major aerospace deals in a while, that price would not be out of line for a deal like this; it overvalues Goodrich on a standalone basis, but United Technologies should be able to pull multiple operating synergies out of the deal, as well as expand into new market opportunities.


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http://stocks.investopedia.com/stock-analysis/2011/Will-United-Technologies-Land-Goodrich-UTX-GR-BA-TXT-COL-ERJ-HON0919.aspx

Investopedia: Navistar Looking For A Higher Gear

These are good days for truck makers as the market is enjoying a sharp recovery out of the depths of the recession. However, they are not equally good days for all players. While PACCAR (Nasdaq:PCAR), Volvo (Nasdaq:VOLVY.PK) and Daimler (Nasdaq:DDAIY.PK) are all enjoying good growth and share gains in the North American truck market, Navistar (NYSE:NAV) is the unfortunate source of that market share growth. While Navistar is showing some progress on the top line, investors have good reasons to be concerned about the company's market position and its decision to stick with its own engine designs.


Mixed Fiscal Q2 Performance
Navistar's performance in the second quarter was pretty mixed. True, the company did post revenue growth of 22% (on 17% shipment growth), but the company again seems to be leaking share to its rivals. Operating performance was more encouraging to a point - gross margin slid a bit (down 70 basis points), but operating income more than doubled from the year-ago level. Even so, this was weaker than most analysts had projected.

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http://stocks.investopedia.com/stock-analysis/2011/Navistar-Looking-For-A-Higher-Gear-NAV-PCAR-CMI-OSK-TXT-GD-VOLVY0609.aspx