What happened
Shares of Textron (TXT 0.97%) are climbing today, up by 11% as of 12:15 p.m. EST, due in part to market exuberance over progress being made on a potential COVID-19 vaccine. A post-pandemic return to normalcy could be a catalyst for a number of the company's businesses and provide a much-needed spark for this underperformer.
So what
Textron has been a tough stock to love lately, with shares down 22% over the past three years and trailing the S&P 500 by more than 60 percentage points. The company, a maker of everything from golf carts to helicopters, has been plagued by issues in various segments that have depressed earnings and tempered enthusiasm about the stock.
Image source: Textron.
Textron made great progress getting its house in order in the recently completed third quarter, but coming out of the results there was still a question of what the catalyst would be to cause the stock to move higher. We might have gotten an answer to that today after Pfizer announced progress in its effort to bring a COVID-19 vaccine to market.
Textron makes some money as an aerospace supplier, and would benefit from a post-pandemic rebound in air traffic. More importantly, a return to normalcy should help boost sales at its Cessna business jet unit.
The company's aviation unit posted an impressive book-to-bill ratio of 1.49 in the third quarter, meaning it has more business coming in than it was billing out. Textron hopes to see the unit grow sales by 20% in 2021, with margin likely improving as the year goes on and Cessna rolls out its refreshed product lineup. The question was when will buyers return, and a vaccine is likely a key part of the answer.
Now what
Textron investors have been in search of a reason to get excited, so it is little surprise shares are jumping on a positive development. But I still think the most important catalyst for the stock won't materialize until late 2021 at the earliest. Textron's Bell unit is a finalist for a couple of huge Army helicopter contracts, and winning either of them would go a long way toward boosting Textron's credentials as a defense contractor.
I believe Bell's V-280 Valor is the favorite to win the Army's Future Long Range Assault Aircraft competition, a potential $40 billion prize. Unfortunately, we are unlikely to know the outcome for a year or more, so in the meantime any development that leads to improving Cessna sales will be gladly welcomed by Textron and its investors.
