Cessna/Beechcraft business jets & turboprops, Bell helicopters & MV-75 tiltrotor, Textron Systems defense, Kautex/Industrial (for sale) · Providence, RI
Price $74.91 · Base $66.78 · Price is +12% above base
What they do
Textron builds aircraft and defense hardware and sells them to wealthy individuals, corporations, fractional-jet operators (NetJets is the anchor customer), and the U.S. government. TTM revenue is $15.3B across four reporting segments. Textron Aviation (41%, $6.2B) makes Cessna Citation business jets, King Air and Caravan turboprops, and Pipistrel light aircraft. It earns about half of group segment profit, and roughly a third of its revenue (estimate) comes from aftermarket parts and service. Bell (29%, $4.4B) makes commercial and military helicopters, plus the V-22 Osprey with Boeing and the Army's MV-75 Cheyenne tiltrotor (FLRAA). MV-75 is in development now, with production targeted for FY2028, and it is the company's multi-decade growth program. Textron Systems (9%, $1.3B) supplies drones, armored vehicles, simulators and weapons subsystems. Industrial (21%, $3.2B) makes Kautex automotive fuel systems and specialized vehicles. It is a low-margin auto supplier, and a sale process has been underway since 4/30/26. A small captive Finance arm funds aircraft purchases.
It makes money on unit margins (about 10–11% at Aviation, 7–8% at Bell, about 12–13% at Systems, 5–7% at Industrial), on price increases over a backlog of about $18.8B, and on a large installed fleet that buys parts and service for decades. The key sensitivities are business-jet demand, which follows corporate profits and wealth effects; U.S. Army funding for MV-75; manufacturing productivity and supply chain; and inflation. Inflation runs through a LIFO charge of about $200M a year.
The Take — The 19% drop did not make TXT cheap. It exposed that the $100 base was built on pension accounting and a 7.9% discount rate.
Why the stock fell from $92 to $75. Four things went wrong, and none was a blow-up. (1) Q2 (7/28) was weak underneath a beat. Adjusted EPS of $1.62 beat by $0.07, but Citation jet deliveries fell to 40 from 49 (−18%). Aviation margin slipped to 10.7% from 11.2% and Bell margin to 7.0% from 7.9% on program performance and military mix. H1 manufacturing cash flow was −$74M (vs +$178M), with capex up 70%. The stock fell 4.8% the next day to $85.61. (2) MV-75 funding broke. The Army ran out of FY26 money in July and issued a stop-work order, so Textron is self-funding to hold the schedule. The Army asked Congress for a $350M reprogramming (Aug 27, with up to 5,000 layoffs at risk). The Pentagon backfilled only $200M on ~9/28 and said "insufficient resources were approved." Management has said the funding gap is worth $0.20–0.30 of EPS and $150–250M of cash, so the reiterated $6.40–6.60 / $700–800M guide is exposed. (3) The Industrial sale catalyst has not arrived. Management cited "significant inbound interest," but no deal has been announced 5½ months after the 4/30 separation announcement. (4) Rates and leadership. The 10-year at about 5.2% de-rates low-growth industrials, and Aviation's 27-year CEO (Draper) retired 8/31. The stock hit a 52-week low of $71.87 on 10/8.
The base case is fair, not punitive, and it lands at $66.78. Revenue grows 4.5–5.5% a year through 2031 (2026 guide $15.5B → $19.9B), with Aviation pricing and aftermarket, a 2027 delivery recovery, and MV-75 production from FY2028. Clean EBIT margin rises from 7.0% to 8.5%, above any year on a comparable basis (best: 7.9% in 2023). The sales-to-capital ratio is 1.6, and stable ROIC is 9.5% on an R&D-adjusted basis, about 1pt over the stable WACC. Prob-weighted (25/50/25) value is $67. A SOTP at full peer multiples (Aviation 13×, Bell 14×, Systems 13×, Industrial 8× segment EBIT, with corporate cost and LIFO capitalized) gives $70. Both methods sit below $75.
What changed vs the 7/28 build ($100 base at $92.46): mostly method, partly business. (a) Discount rate: the risk-free rate is 5.20% (was 4.62%), and beta is a bottom-up 1.10 relevered at 32% D/E instead of the 0.91 regression beta. WACC goes from 7.9% to 8.84%. At the old 7.9% this model gives $78. (b) Pension income is now excluded from EBIT. Textron books about $266M a year of non-service pension income. That is roughly $1.23/share, or ~19% of "adjusted EPS." It is an actuarial return on plan assets, not operating profit. The prior ~9–10% "operating margin" counted it. Put it back and this model returns $101, the prior answer. (c) LIFO is kept as a real cost, normalized at $138M (the 2022–25 average). Management's adjusted EPS adds it back ($0.87/share in 2026). Operationally, Bell margins, Aviation deliveries and the cash timeline are all worse than in July. Bull drops from $147 to $91 and bear from $67 to $43.
Reverse DCF: $74.91 requires a 9.3% clean margin forever (TTM 6.8%, 4-yr average 7.1%), or 1.56× base growth every year, or a WACC about 50bp lower. That is plausible only if MV-75 reaches full-rate production on schedule and the Aviation productivity plan (~+200bp) lands at the same time. At 11.5× adjusted EPS the stock looks cheap, but on operating earnings excluding pension income and normalizing LIFO it is about 14×. That multiple is fair for a 4–5% grower with ROIC (8.3% clean, 5.8% R&D-adjusted) at or below its cost of capital.
Call: no new money above ~$70. Accumulate below $62 (base −7%); aggressive starter ≤ $67 (base / prob-weighted). Holders from the July starter: don't add on the "it's down 19%" logic. Hold the position for the separation and MV-75 optionality, and trim into $85+ (the bull-weighted zone, about where the stock traded after Q2). Q3 prints Oct 29 before the open (consensus $1.47). The tells are: the 2026 guide holding with the MV-75 gap absorbed, H2 cash flow tracking the ~$825M needed for the $750M midpoint, Citation deliveries, and any signed Industrial sale (8× EBIT, ~$1.3B, roughly confirms the SOTP; every 2× above that adds ~$2/share and removes the low-margin drag). Options, defined-risk: holders can write covered calls at the $85 strike, Dec/Jan expiry, after the print. New money can sell cash-secured puts at the $65 strike and get paid to wait for a base-value entry. A post-print $85/$90 bear call spread is the expression for a short view. Don't short it naked: beta is low, and a signed Industrial sale or full MV-75 funding could gap it up 8–10%.
Risk Profile — MEDIUM
HIGH
Business-jet cycle. Aviation is 41% of revenue and about half of segment profit. Deliveries track corporate profits, equity wealth and fractional demand. Long a soft landing; short a recession (2020 trough: Aviation profit fell to $16M on $4.0B revenue).
HIGH
MV-75 / U.S. Army funding. Bell is 29% of revenue and holds the growth program. FY26 funding was short: $350M asked, $200M backfilled, and a stop-work order in July. Cost growth at the prime and critical suppliers has been reported. Long continuing resolutions and full funding; short budget slips and program restructuring.
MED
Execution / margins. Bell margin fell to 6.9% in H1, Aviation has manufacturing inefficiencies, and there is a new Aviation CEO. The ±1pt steady-state margin swing is worth −$10/+$10 a share, and it is the master driver.
MED
Rates / multiple. WACC ±100bp moves value by −$13/+$18. The October lows coincided with the 10-year above 5%. 61% of value is terminal.
MED
Separation execution. The Industrial sale price, tax leakage on a taxable sale, and stranded corporate costs are all open. A spin takes 12–18 months, and auto-supplier multiples are low (Kautex is about 5–6× EBITDA territory).
LOW
Balance sheet. Manufacturing debt is $3.47B against $1.44B cash (net ~$2.0B, about 1.4× EBITDA), and Textron is investment-grade. It buys back ~$750–800M a year, about 6% of the market cap.
What the "inventory" really is: $4.7B of aircraft work-in-process and finished jets (up $440M YTD), plus Bell's self-funded MV-75 long-lead parts. You are long Citation pricing power and an Army tiltrotor ramp in 2028–35, and short a business-jet downturn and Washington's budget process. The tornado's widest bars are the discount rate and steady-state margin. Growth matters less, because incremental ROIC is only about at the cost of capital.
Scenario values per share vs price
Bear: Aviation downturn (revenue −3% in 2027, −1% in 2028), MV-75 delayed, margin peaks at 6.5%, stable ROIC 8.5%, g 2.0%. Base: 4.5–5.5% growth to 2031, 8.5% clean margin, ROIC 9.5%, g 2.5%. Bull: MV-75 full-rate production plus Aviation productivity, 5.5–7% growth, 10% margin, ROIC 11.5%. Prob-weighted 25/50/25 = $66.80. SOTP = segment-EBIT multiples cross-check (see below). No blue-sky case: even the bull needs a margin Textron has never earned on this basis.
Driver tornado: Δ value/share from base $66.78
Labels sit beside each bar. The LIFO bar runs the whole margin path at the actual TTM charge ($212M, bear side) versus no LIFO charge (management's "adjusted" view, bull side).
Green = at least 5% above the $74.91 price; yellow = within ±5%; orange = up to 30% below; red = more than 30% below. Clean margin is after normalized LIFO and excludes pension income. The TTM margin is 6.8% and the best comparable year is 7.9%. Price is matched only at a 9.5% margin on the base path, or at 8.5% with 1.5× base growth.
Sensitivity: value/share by WACC × terminal growth
WACC (high-growth → stable) ↓ / g →
1.5%
2.0%
2.5%
3.0%
6.84% → 6.49%
$103
$107
$112
$118
7.84% → 7.49%
$81
$83
$85
$87
8.84% → 8.49%
$65
$66
$67
$68
9.84% → 9.49%
$54
$54
$54
$54
10.84% → 10.49%
$45
$45
$45
$44
Terminal growth barely matters because stable ROIC (9.5%) is close to the stable WACC, so growth adds little value. The prior build's 7.9% WACC sits between the top two rows.
2022 onward are on the current segment basis (pension income excluded, LIFO and amortization below segment profit). The gray dashed 2018–21 points are the old basis (segment profit less corporate), which includes non-service pension income and is not comparable. It overstates margin by roughly 1–1.5pt. 2018 GAAP includes the $444M Tools & Test sale gain; 2020 is the COVID trough.
Normalization worksheet & R&D capitalization ($M)
FY
Revenue
GAAP op. EBIT
Acq. amort
One-offs
LIFO (kept)
Clean EBIT
Margin
R&D
Pension inc. (excl.)
FY2018 (old basis)
$13,972
$1,519
in seg.
−$371
in seg.
$1,148
8.2%
~677e
in seg.
FY2019 (old basis)
$13,630
$1,088
in seg.
$72
in seg.
$1,160
8.5%
~647e
in seg.
FY2020 (old basis)
$11,651
$427
in seg.
$202
in seg.
$629
5.4%
~563e
in seg.
FY2021 (old basis)
$12,382
$997
in seg.
$8
in seg.
$1,005
8.1%
619
in seg.
FY2022
$12,869
$870
$52
$0
($71)
$922
7.2%
601
$240
FY2023
$13,683
$912
$39
$126
($107)
$1,077
7.9%
570
$237
FY2024
$13,702
$758
$34
$116
($176)
$908
6.6%
491
$263
FY2025
$14,799
$979
$32
$4
($199)
$1,015
6.9%
~510e
$266
TTM Jul-26
$15,299
$1,008
$31
$0
($212)
$1,039
6.8%
~477e
$273
GAAP operating EBIT = total segment profit − corporate − LIFO − acquired amortization − special charges (before interest and non-service pension income)
TTM $1,008
4-yr average clean margin (FY22–25) → normalized EBIT on TTM revenue
7.13% → $1,091
LIFO normalized at FY22–25 average $138M (TTM $212M, 2026 guide ≈$190M pre-tax) → normalized TTM clean EBIT
$1,113 (7.3%)
2026E starting clean EBIT (guide-implied, LIFO normalized) on $15.5B
$1,085 (7.0%)
Research asset (10-yr SL, FY16–25 unamortized)
$3,147
FY25 R&D ~$510 − amortization $620 = EBIT adjustment (R&D has shrunk from ~$680M)
−$110
Invested capital (equity + debt + leases − cash) + research asset
SBC is kept as an expense inside segment profit and corporate cost. The SBC expense line was not obtained from the filings, so it is not shown separately. One-offs are special charges (severance, contract terminations, the 2024 Powersports inventory charge) and disposal gains. R&D for FY25 is estimated from H1 ($269M) and the 10-K trend. FY15–20 R&D is estimated (~$560–680M/yr) because the XBRL pull was unavailable. The R&D-adjusted basis matters for ROIC and the terminal value, not for FCFF, which is unchanged by capitalization. The 2020 COVID trough (≈4% on a comparable basis) anchors the bear case. The base does not capitalize a peak: 8.5% is above the 4-yr average, and that is justified only by MV-75 production mix and the stated Aviation productivity program.
Base-case FCFF ($M) — 2026E base revenue $15.5B (guide)
FY
Revenue
g
Clean margin
EBIT
R&D adj.
NOPAT
Reinvest
FCFF
WACC
PV
FY2027
$16,197
4.5%
7.3%
$1,182
−$67
$958
$436
$522
8.84%
$479
FY2028
$17,007
5.0%
7.6%
$1,293
−$25
$1,047
$506
$541
8.84%
$456
FY2029
$17,943
5.5%
7.9%
$1,417
$18
$1,148
$585
$564
8.84%
$437
FY2030
$18,930
5.5%
8.2%
$1,552
$57
$1,257
$617
$641
8.84%
$456
FY2031
$19,876
5.0%
8.5%
$1,689
$83
$1,368
$592
$777
8.84%
$509
FY2032
$20,771
4.5%
8.5%
$1,765
$110
$1,416
$559
$857
8.77%
$516
FY2033
$21,601
4.0%
8.5%
$1,836
$130
$1,458
$519
$939
8.70%
$520
FY2034
$22,357
3.5%
8.5%
$1,900
$142
$1,494
$473
$1,021
8.63%
$520
FY2035
$23,028
3.0%
8.5%
$1,957
$141
$1,523
$419
$1,104
8.56%
$518
FY2036
$23,604
2.5%
8.5%
$2,006
$137
$1,545
$360
$1,185
8.49%
$513
2H26 stub FCFF (manufacturing cash flow guide midpoint $750M less H1 −$74M, plus after-tax interest, less pension contributions)
Reinvestment uses a 1.6 sales-to-capital ratio (FY21→TTM incremental). Tax is 19% (FY25 effective 18.8%), gliding to 23% marginal. The R&D adjustment column turns positive as the old ~$680M/yr R&D vintages roll off. The terminal NOPAT uses the R&D-adjusted EBIT. TV share is 61%, below the 70% flag. r > g holds.
− Finance group debt (finance segment profit is in EBIT)
($339)
− Operating lease liabilities ($56 + $350)
($406)
− Pension & postretirement liability recorded (any plan surplus not credited, see note)
($400)
Noncontrolling interest
none material
Equity value
$11,580
÷ Diluted shares (171.99M basic at the 10-Q date + ~1.4M RSU/option equivalents)
173.4M
Value per share
$66.78
Pension note: excluding $266M/yr of non-service income is conservative only if the plans are not in surplus. Each $1B of verified net surplus would add ≈ $4.60/share after tax. Funded status was not retrievable for this build.
+$4.60 / $1B
Street: 9 Buy / 10 Hold / 0 Sell, mean target $100.29 (range $86–115, as of 9/28). FY26 EPS consensus $6.47.
− Net debt, finance debt, leases, pension liability
($3,175)
SOTP value per share
$69.88
Multiples are judgment, set at peer-parity levels: business jets 13× (GD/Embraer-type), Bell 14× (defense plus the MV-75 option), Systems 13×, Industrial 8× (auto-supplier). These are EBIT multiples, not EBITDA. Corporate cost and normalized LIFO are capitalized at 10×. eAviation was folded into Aviation and Systems on 1/4/26. Every +1× on all three A&D segments adds about $7/share, so it takes about 2× of uniform re-rating to reach $85. The pure-play re-rate thesis is real but already roughly in the price. An Industrial sale at 8× (~$1.3B pre-tax) is about value-neutral.
Sources: Textron Q2 2026 8-K/press release (7/28/26) and 10-Q for the period ended 7/4/26; Q4/FY2025 8-K (1/28/26) with 2026 outlook; FY2023, FY2022, FY2021 and FY2019 Q4 8-K releases for segment history; FY2024 10-K (R&D, pension non-service income); 2025 Annual Report (backlog, finance debt); stockanalysis.com balance sheet (leases, share count, as of 7/4/26); Aviation Week 10/12/26 (MV-75 $200M backfill, July stop-work); Bloomberg Government 8/27/26 ($350M reprogramming request); MarketBeat 7/28 call highlights and 10/6/26 52-week-low note; TradersUnion 7/29/26; Simply Wall St (Aviation CEO change 8/26/26); Robinhood quote, fundamentals, analyst ratings and earnings calendar (10/15/26). Estimates are labeled "e". The Robinhood SEC XBRL pull returned no data for TXT, so filings were read from releases. Q3 2026 earnings Oct 29 before market open. Prior build: TXT memo 2026-07-28. Educational analysis, not investment advice.