Textron: Don't Miss This Highflier

Aerospace and defense giant Textron (NYSE: TXT  ) recently posted first-quarter numbers that exceeded analyst estimates. However, the market punished its shares on the day results were announced as it did not raise its profit outlook for the year.

If you ask me, the company's numbers were quite strong. In fact, a small dip in share price should be seen as a buying opportunity rather than a weakness and here's why.

Quick look at the quarter
Textron's sales surged to $2.9 billion, 15.2% higher than the year-ago quarter. The company's bottom line grew to $118 million, compared to merely $29 million last year. This translates into earnings of $0.40 per share, which comfortably beat the $0.35 Wall Street was expecting.

A good delivery
The company's helicopter and business jet segments stole the show. Textron generates nearly 35% of its revenue by selling choppers under its Bell brand. The business was robust during the quarter, with revenue growing by 33% as Textron increased deliveries to the government and other customers. And the future looks good, as well. Despite a decline in Bell's backlog because of a faster delivery rate, this division still has sizable orders worth $7.1 billion.

Speaking of backlogs, Textron's Cessna division, which produces business jets, also has a considerable order backlog totaling $1.7 billion. Helped by increased delivery of its Citation jets, Cessna (which accounts for nearly a quarter of the company's revenue) recorded a rapid 20% growth. Although this segment did not post a profit this quarter, its sales went up by 20%, helped by new orders that exceeded the combined total number of orders received during the first three quarters of the previous year.

Hovering over Asia
Demand for choppers and other military products has been growing in Asia in general and China, in particular. It seems like a lot of defense biggies, including Textron, have now woken up to this big opportunity, trying to find a place in China's good books.

Textron expects China to become the biggest business aircraft market after the United States within the next 15 years. In order to gain an early foothold, the company is entering into a joint venture with a division of China's Aviation Industry Corp. (AVIC) to build midsized business jets and co-develop larger ones. But competition is not far behind. Peer Honeywell (NYSE: HON  ) has signed a number of similar agreements with Chinese aerospace companies for services such as the development of general-aviation cockpits.

The Chinese opportunity will have a direct impact on Textron's biggest segments -- Bell and Cessna -- as these units together drive more than half the company's sales. In contrast to that, rival United Technologies (NYSE: UTX  ) is a diversified company with relatively less exposure to the helicopter and aerospace markets. For United Tech, the contribution to sales of these two divisions represented 14% and 24%, respectively.

The Foolish takeaway
Given the company's current numbers, backed by the potential demand from China, Textron looks well-positioned for long-term growth. I am bullish on Textron, but if defense stocks do not interest you, there's another company that has got us all excited. We've dubbed it "The Motley Fool's Top Stock for 2012." The free report highlights a company that is revolutionizing commerce in Latin America, and you can get instant access to the name by clicking here.

Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Textron. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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