Textron

Second-quarter revenue grew 3% year over year to $3.8 billion, while segment operating profit grew just 2% to $353 million at a just-over-9 % margin. The company delivered one more airplane to customers than in the year-ago quarter, including nine fewer jets.

Why it matters: Textron is in the early innings of what is taking shape as a promising, thorough, and probably overdue strategic overhaul of its business portfolio, starting with management's decision to separate the industrials segment from the faster-growing, more profitable aerospace- and defense-focused businesses. Airplanes and rotorcraft have long been the key drivers of Textron's fortunes, and separating out golf carts and gas tanks should provide investors and the company with mutual focus. Within the aerospace and defense portfolio, the company has also begun taking a fresh, top-to-bottom look at how to better use its wide-ranging manufacturing facilities and talent pool, including cross-team collaboration and supply chain efficiency.

The bottom line: After incorporating the time value of money, we have raised our fair value estimate for no-moat Textron to $100 per share from $99. This valuation represents 15.6 times our 2026 earnings estimate and an enterprise value/adjusted EBITDA multiple of 10.3 times.

Our fair value estimate is $100 per share. This discounted cash flow valuation equates to 15 times our 2026 earnings estimate and an enterprise value/adjusted EBITDA multiple of 10.2 times.

Demand for private jets has surged since the beginning of the pandemic, as customers with the means to do so have avoided airlines and travel hassles by flying privately. For Textron, that translated into 19 more jets delivered in 2024 than in 2020, but the firm still delivered 55 fewer than in 2019, and its sales of propeller aircraft have steadily eroded over time. Longer term, we assume that the company’s Longitude and Latitude jets will grow as a portion of its aircraft sales, buoyed by a large order from NetJets. So, because of the higher prices of its largest, newest jets, even if Textron's overall aircraft deliveries remain basically flat, its revenue may grow by double digits from time to time in a market that historically grows about 2% per year. We expect Textron to deliver on its robust backlog but do not see further structural demand shifts in private aviation. The aviation segment delivers half or more of the company's profits in most years, accounting for the lion's share of its enterprise value.

In Bell, we anticipate that commercial revenue will remain flat for the foreseeable future, while the MV-75 program will offset declines in older military programs, keeping revenue in that segment above $2 billion.

We assume segment operating margin will improve gradually from the 7.9% posted in 2024 and 8.2% in 2025 to about 10.5% at midcycle, an increase of 2 percentage points from the 2015-19 average, primarily as we expect the company to reap the reward of previous aviation research and development costs.

Notwithstanding its operating leverage and exposure to cyclical business, we use an average cost of equity to discount our cash flow projections due to the increasing importance of acyclical military revenue. Our cost of capital estimate is 7.8%.

We don't believe that Textron has a moat. The moat sources we would look for in the aerospace and defense business are intangible assets from product complexity acting as a barrier to competitive entry and switching costs stemming from mission-critical products with long lifecycles. While we see some of these characteristics in a few of Textron's subsegments, they make up too small a portion of its business and the company faces too much competition in its other segments for it to generate economic profit. It hasn’t done so since 2019, by our reckoning, and we forecast it to earn 8.6% average returns on invested capital over the coming five years, barely surpassing its 7.8% cost of capital.

We don't think Textron’s aviation segment has a moat. It comprised 40% of 2025 company revenue, and its popular aircraft brands, including Cessna, make up the majority of propeller planes and over 40% of business jets in operation today, totaling nearly 20,000 aircraft. The business jet and small airplane markets are cyclical and never fully recovered from the financial crisis, when Textron's aviation sales fell 55%. Textron is in third place behind Gulfstream and Bombardier, ahead of Dassault and Embraer by large and medium business jet market share. Textron faces increased competition in the small-jet market from entrants Honda and Cirrus. Textron competes primarily with Pilatus, Piper, and Daher in propeller aircraft and does not meaningfully participate in the commercial jet market. During 2015-19, while a wide-moat competitor like Gulfstream, with 3,000 jets in service, boasted 18% operating margins in its aircraft segment, Textron’s averaged 8%. Although both make about one-third of their revenue from aftermarket aircraft parts, repairs, and service, the complexity and proprietary design of larger jets engenders barriers to entry and switching costs, but smaller jets and especially propeller-driven planes not only cost less in absolute terms, but they carry fewer proprietary designs and components, and their buyers have more alternatives when it comes to maintaining them.

Textron has continued to invest in its Citation line of business jets, extending their range above 3,000 nautical miles versus previous generations with ranges under 2,000 nautical miles. Nonetheless, these largest of Cessna's jets compare with the smallest and shortest-range models of its competitors. The company’s investment in larger jets necessitated substantial research and development, which compressed margins and added to its invested capital base. In Textron's case, we don't think pursuing the even-larger end of the jet market would be rational, given the competition.

We think Bell, which produces military rotorcraft and civilian helicopters, has a narrow moat. Bell comprised 29% of 2025 company revenue and is typically the segment with the highest return on assets, primarily due to switching costs stemming from the large installed base of over 9,000 mission-critical rotorcraft. These have useful lives over 20 years and their spare parts are generally proprietary, providing a sticky aftermarket stream of income, which we estimate at 36% of segment sales.

Bell’s military business makes up about three-fifths of segment revenue, dominated by the V-22 “Osprey” tilt-rotor program. As military helicopters have decadeslong useful lives, we believe the company will continue earning an excess return through V-22 sustainment even after production halts. In late 2022, the US Army awarded Bell the contract for its MV-75 tilt-rotor aircraft over competing designs from Sikorsky and Boeing. We believe this is an endorsement of Bell’s tilt-rotor capabilities and stands to set Bell up for many years of profitable production and sustainment revenue. A loss of V-22 sustainment or MV-75 program order volume without the prospect of a future tilt-rotor platform for Bell would prompt us to reconsider its narrow moat rating.

Bell generally delivers about 10%-20% of civilian helicopters, making it hard to gain any meaningful market power versus competitors like Airbus, Robinson, Bell, Leonardo, Enstrom, and Sikorsky.

We don't believe Textron Systems has a moat. The segment produces a mix of uncrewed aircraft and armored vehicles as well as flight simulation and training for commercial and military aircraft, generating 9% of Textron’s 2025 sales. The uncrewed aircraft division enjoys incumbency on the RQ-7 Shadow, an uncrewed aerial vehicle that was frequently used for intelligence, surveillance, and reconnaissance during the US occupation of Iraq and Afghanistan. UAVs tend to be shorter-cycle programs, which provide less long-term revenue visibility in military sales, and we don't see any meaningful aftermarket for these aircraft. The company’s armored vehicle segment is not competing for the Bradley Fighting Vehicle replacement contract, which limits our revenue visibility for the subsegment to sustainment and modifications for the M1117 Armored Security Vehicle, which has been in service since 1999. Although we believe that flight simulators, particularly for military aircraft, are a sticky business that is unlikely to be recompeted, we think that any advantages this subsegment offers are offset by its less moaty categories. We think the segment’s mid-single-digit return on assets does not provide compelling evidence for a moat.

We don't believe Textron’s industrial segment has a moat. It represented 22% of 2025 revenue, and in mid-2026, management announced it is planning to divest it.

Textron has a massive opportunity with the MV-75 contract to become the preeminent military rotorcraft manufacturer for the foreseeable future.

Textron’s Citation Latitude and Longitude super-midsize business aircraft are desirable alternatives to long-range business aircraft, which should drive sales for the company’s aviation segment.

Textron services an immense installed base of its planes and helicopters, which provide many years of recurring albeit cyclical revenue.

Textron’s smaller aircraft face increased competition from new entrants in the business jet market, which can challenge pricing and margins.

Lower oil prices threaten incremental demand for commercial helicopters used to explore for new drilling sites.

US defense spending may enter a downcycle, which would challenge the top line for Textron Systems and Bell’s military subsegment.