On Sep 5, 2014, we issued an updated research report on Textron Inc. (TXT). This aerospace and defense firm continues with its systematic inorganic growth initiatives besides expanding its product and service portfolio.
The current sequestration wave has driven defense players like Textron to resort to acquisitions. In fact, dwindling military spending and industry uncertainty have led standard defense operators to consolidate their businesses beyond the core military sector.
Year to date, Textron has completed quite a few acquisitions, including TUG Technologies Corp. and Beech Holdings, LLC. In Jul 2014, the company’s business arm TRU Simulation + Training Inc. acquired ProFlight, LLC, a leading innovative and advanced pilot training service provider.
Earlier, on May 2, 2014, Textron’s unit E-Z-GO took over TUG Technologies Corp., from Jacobson Partners. TUG manufactures ground support equipment for airlines, air-freight companies, ground handlers, government agencies and airports. In addition, the company acquired Beech Holdings, LLC in Mar 2014 in a transaction valued at around $1.4 billion in cash. Beech Holdings has expertise in designing and manufacturing various types of aircraft, including the King Air turboprops, piston-engine Baron and Bonanza and the T-6 trainer and AT-6 light attack military aircraft. Textron has already generated synergies from the deal having delivered the first eight King Air during the first quarter.
The acquisition of Beech Holdings’ businesses is expected to contribute roughly $1.5 billion to the company’s 2014 revenues under the Textron Aviation division. Earlier, Textron had acquired Sherman & Reilly, Inc. and HD Electric Company. The strategic acquisition program will enable the company to leverage its existing distribution network to gain market share and realize synergies.
Diversified U.S. conglomerate Textron reported better-than-expected second quarter 2014 earnings buoyed by higher contribution from most of its business segments. The Beechcraft acquisition acted as a catalyst to the company’s quarterly performance. Textron reaffirmed its 2014 earnings per share from continuing operations guidance, taking into consideration the Beechcraft acquisition.
In a climate of budget cuts, foreign military sales also offer some respite and an alternative source of revenue. In May, a Textron unit, Textron Defense Systems, was chosen by South Korea for the supply of anti-armor weapons to strengthen its arsenal in response to North Korea’s growing nuclear threat. The contract had a value of $190.1 million.
Although acquisitions in the past have helped the company to expand its core offerings, we prefer to remain cautious given the U.S. budget deficits and political uncertainty, along with intensifying competition.
Other Defense Picks
Textron currently carries a Zacks Rank #3 (Hold). Stocks to look out for in this space are Lockheed Martin Corp. (LMT), The Boeing Co. (BA) and General Dynamics Corp. (GD), all with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment