BofA Downgrades Textron to Neutral from Buy, Raises PO from $29.00 to $40.00

In a report published Tuesday, Bank of America Merrill Lynch analyst Ronald Epstein downgraded Textron, Inc. TXT to Neutral from Buy, raising its price objective to $40.00 from $29.00. According to the report, the price objective raise was based on using 15.5x one-year forward P/E multiple on 2015 estimates. The multiple is a weighted average multiple that factors in a 13.x multiple on its defense business and 16.5x multiple on its commercial business. “In our opinion, the stock is approaching fair value considering its recent run,” the report said. “In 2013, TXT was up 48.3% vs. the S&P 500 Index which appreciated 29.6%. In our view, TXT is already incorporating earnings accretion related to the acquisition of Beechcraft Corp as well as modest recovery of the business jet industry. We are increasing our price objective to $40 from $29 as we factor in a higher multiple on TXT's commercial business, roll over the valuation model to reflect 2015 earnings vs. 2014 earnings and account for Beechcraft in our estimates. At current levels, we see limited upside for the stock and consequently, we are downgrading to Neutral from Buy.” TXT closed Monday at $36.16.