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Why Textron Shares Tanked

By Brian D. Pacampara, CFA - Apr 17, 2013 at 5:09PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Textron (TXT 2.64%) sank 11% today after the aircraft maker's quarterly results and outlook missed Wall Street expectations.

So what: The stock has surged in 2013 on optimism over rebounding sales, but a disappointing first quarter -- operating EPS of $0.40 on flat revenue of $2.86 billion versus the consensus of $0.45 and $2.89 billion -- coupled with downbeat guidance is forcing investors to sober up. Management blamed the gloomy report on soft military spending and weak demand for its business jets, suggesting that the headwinds facing management are only getting stronger.

Now what: Textron now expects full-year operating EPS of $1.90-$2.10, well below its earlier forecast of $2.10-$2.30. "[W]e believe the global business jet market still has significant long-term growth potential and we remain committed to our new product plans," said Chairman and CEO Scott Donnelly, "which include introduction of the M2, and new Sovereign and Citation X models later this year, as well as the Latitude in 2015 and the Longitude in 2017." With the stock still up 20% from its 52-week lows and trading at a P/E of nearly 15, however, I'd wait for even more of a pullback before buying into that optimism.

Interested in more info Textron? Add it to your watchlist.

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