Textron Reports Strong Commercial Growth in Second Quarter; Military Relatively Stagnant

No-moat rated Textron reported solid second-quarter results as activity continues to rebound in its end markets. Sales for the quarter were about $3.2 billion, up 29% year over year and in line with second-quarter 2019. Textron posted earnings per share of $0.81, ahead of our expectations and FactSet Conesus. Deliveries were solid across the board as commercial demand was able to offset relatively stagnant military demand. While we are encouraged by commercial growth, we are unconvinced that this will continue in the long run. That said, we maintain our fair value estimate of $42. This would have been raised about $1 to reflect an increase in our near-term revenue and margin assumptions, but it is offset due to the impact of Morningstar's probability-adjusted U.S. corporate tax rate of 26% beginning in 2022. With shares trading around 55% above our fair value, they still look quite overvalued to us.