Textron (TXT 1.94%) has been a Wall Street underperformer for some time now, trailing the S&P 500 by more than 50 percentage points over the past five years. The company over the years has attempted to break out of the rut. Its latest attempt fell through in February, causing shares of Textron to fall 11.6% in the month, according to data provided by S&P Global Market Intelligence.
Textron shares have underperformed due to a series of issues spread across the industrial conglomerate's vast portfolio that have led to earnings disappointments. The company, a maker of everything from business jets to snowmobiles, has been hit by a decadelong lull in corporate jet sales and retail channel problems.
Management has reacted by cutting costs and trying to revamp its businesses to spark growth, but it increasingly seems likely Textron needs a portfolio reshaping deal or is likely to face pressure from investors to consider asset sales or a breakup.
The stock got a boost in early February after reports surfaced Textron was pursuing an acquisition, with the company said to be in talks with Bombardier to combine that company's business jet unit with Textron's Cessna business. A deal would give the Textron unit better economies of scale and more pricing power by reducing the number of major business jet manufacturers from three to two.
The acquisition would also build Textron's fleet of jets in service, expanding the company's opportunity to generate reoccurring revenue from servicing planes and selling replacement parts.
But the combination was not to be. Bombardier late in the month announced it would instead sell its train division to Alstom for $8.2 billion and use the proceeds from that deal to pay down its debt and invest in its aviation division. With the train deal, hopes that Bombardier would sell its plane business faded, and with them Textron shares.
Textron has a lot of strong assets in its portfolio, but there is no quick and easy fix on the horizon to get the stock moving again. The best bet for Textron is in the defense sector, with its Bell division in a good position to compete for two multibillion-dollar U.S. Army helicopter awards. A slow gradual recovery in the business jet market also appears likely as the existing fleet continues to age.
Textron has an interesting year ahead. If the company can't find a way to get the stock moving, it is possible activist investors will enter the picture with their own ideas. There are still potential levers to be pulled, but Textron in February missed out on an opportunity to change the narrative when Bombardier decided not to part with its business jet unit.