The Music Hasn't Stopped for Textron Yet, but We Still Think the Stock Is Overvalued

Textron reported strong third-quarter earnings as the private jet market remains in the strongest cyclical upswing we’ve seen in over a decade. Revenue of $3.0 billion missed FactSet consensus by 4.7% but adjusted EPS of $0.85 beat FactSet expectations by 9.6%. After incorporating third-quarter earnings into our model, we are increasing our fair value estimate to $47 from $42 per share as we increase our medium-term revenue and margin projections to reflect the continued strong demand environment for private aviation. While the music in business aviation hasn’t stopped yet, we continue to believe that the demand surge for midsize private jets is a temporary shift rather than the start of a new norm, though if the demand environment persists well into 2022 when we expect commercial airlines will have much more supply available, we may need to re-assess our thesis.