Textron Wins Morgan Stanley Upgrade Despite Mixed Earnings, 'Weak' Guidance

Textron Inc. TXT's earnings report Wednesday consisted of a profit miss and weak 2018 guidance, but one Wall Street analyst now sees reason to be "less bearish" on the stock.

The Analyst

Morgan Stanley's Rajeev Lalwani upgraded Textron's stock rating from Underweight to Equal-weight with a price target raised from $55 to $60.

The Thesis

Textron's fourth-quarter report was "light to in-line" and the 2018 guidance was "weak," which contributed to the stock's move lower during Wednesday's trading session, Lalwani said in the upgrade note. (See the analyst's track record here.) 

Lalwani outlined three reasons for Thursday's upgrade: 

• Textron's earnings report makes it clear that the business jet market has improved, as new aircraft deliveries are likely to be flat in 2018 — which marks an improvement from a mid-single-digit downturn in 2017. Textron management acknowledged during the conference call that there is "no question that the level of activity out there is stronger than we've seen in some time," which creates a bull case potential of 20-percent revenue growth and 5-percent margin improvement in the business.
• Textron's stock hasn't performed well so far in 2018 and was the "weakest" stock among Lalwani's coverage in 2017. Given the belief the stock's underperformance "should slow" at the very least and a bull case of outperformance, the stock is now looking more attractive than it did ahead of the earnings report.
• A small group of investors continue to push Textron's management to enact several shifts in its strategy, including the exit of select businesses. Any strategy shift could be "notable," although it is "not in the cards for now." 

Price Action

Shares of Textron were trading higher by 2.13 percent at $59.92 at the time of publication Thursday afternoon. 

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