Shares of Textron (NYSE:TXT) fell more than 13% on Monday, dropping to a multiyear low, as part of the broader COVID-19 coronavirus-related market sell-off. Textron shares survived the late-January initial coronavirus market sell-off unsinged, but as the crisis has intensified and an industrial recession grows more likely, few manufacturing companies have been left unscathed.
Textron arguably could be hurt by the dramatic plunge in oil prices over the weekend, as low fuel prices make it more economically viable to operate older, less fuel-efficient equipment. That, coupled with the growing concern that the coronavirus-related economic slowdown could trigger a recession, could cut into demand for new business jets, including Textron-made Cessnas.
The sell-off could also reflect a push by investors to move away from riskier stocks. While Textron is not at risk of collapse, the shares have been mired in a multiyear slump due to a series of issues spread across the industrial conglomerate's portfolio that have led to earnings misses.
Textron is a company in search of a spark, and that is going to be much harder to come by in a slowing economy. With one rumored move -- a potential acquisition of the business jet unit of Bombardier -- now seemingly off the table, it is hard to see how Textron will be able to outperform in the quarters to come.
With the sell-off, Textron now trades at just 8.8 times earnings and less than 0.5 times sales. Given the breadth of its portfolio, that feels oversold, even if we are headed into a recession. The problem remains that there is no obvious catalyst to get investors excited about owning Textron shares and get sentiment moving in a positive direction again.
The defense sector might be the best near-term hope for Textron, as the company is expected to be among the finalists in at least one of two upcoming multibillion-dollar Army helicopter competitions. But even that will take years to fully play out. In the meantime, Textron remains stuck in the wrong gear.