Bright Spots In Textron's Future Make This Discount A Compelling Value

• Shares of Textron, Inc. TXT have declined close to 13 percent, year to date.
• Citi’s Jason Gursky has upgraded the rating on Textron from Neutral to Buy, while maintaining the price target at $50.
• The recent pullback in the stock, due to global market volatility, offers a compelling entry point, according to Gursky.

While the stock valuation is currently compelling, Gursky also believes that the company enjoys a positive earnings outlook, driven by recent long term contract wins, especially in the military business.

However, the Citi report cautions that the business jet market continues to be challenged due to oversupply of new aircraft over the past decade. “In our view, these units are creating an overhang on demand for new aircraft that is likely to persist through 2020,” the report stated.

On the other hand, Gursky believes that “Textron is benefiting from a relative strengthening of its strategic positioning and from cost synergies, both of which are likely to allow for continued margin improvement over the next several years.”

Also, while the slowing of the China market has been cause for concern, only 8 percent of Textron’s revenues come from Asia, while the US, Europe and Canada account for close to 80 percent.

“As a result execution is key, especially as it pertains to development programs at Aviation, Systems and Bell,” Gursky added.