Key Takeaways
2026 Guidance and Estimate Changes
Textron initiated 2026 EPS guidance with the low-end meeting our forecast but missing the Street by 5%, sending shares down 8%. The company guided to a range of $6.40-$6.60, below consensus expectations of $6.85. Further pressuring shares is the overhang of a negative cumulative catch at Bell related to the FLRAA program, with Aviation margins somewhat lofty in our view.
Despite these headwinds, TXT trades at 14x our 2026 EPS versus peer average of 27x, representing a 48% discount to peers and 46% discount to S&P 500. The company expects EPS to grow 1% in 2026 followed by 16% growth in 2027 as the FLRAA charge normalizes and Aviation delivery momentum continues.
| Metric | 2026E JEF | 2026E Cons | Variance | 2027E JEF |
|---|---|---|---|---|
| Revenue | $15,477M | $15,503M | -0.2% | $15,995M |
| EPS | $6.15 | $6.85 | -10% | $7.15 |
| Aviation Margin | 11.6% | ~12% | -40 bps | 12.2% |
| Bell Margin | 6.6% | 8.0-9.0% | -190 bps | 8.5% |
Segment-by-Segment Analysis
Textron Aviation expects revenue growth of 6% to $6.3 billion in 2026, driven by core delivery growth following a 13% year-over-year increase in 2025. The company faced a 4-week strike in Wichita from September 23 to October 23, 2024, with total impact of approximately $500 million of revenue and $150 million of segment EBIT. Production ramped following workforce return with lingering inefficiencies into Q1.
Bell revenues are expected to grow 3% to $4.4 billion in 2026, with margins contracting 200 basis points on the FLRAA charge. The MV-75 program continues to ramp after Milestone B award in Q3:24. Management noted that upon award of the FLRAA LRIP option, the company expects to record the unfavorable cumulative catch-up adjustment in Q4:26 or Q1:27.
Systems is expected to see approximately 7% revenue growth to $1.33 billion, largely in line with guidance of $1.35 billion, supported by various contracts including GBSD, Ship-to-Shore, and ATAC. Margins are guided to 12.0-13.0%, down approximately 60 basis points year-over-year at the midpoint.
Textron Aviation: Solid Backlog Supports 2026 Deliveries
Textron Aviation's backlog was down 1% sequentially in Q4 to $7.7 billion and down 2% from the year-ago quarter. This implies Q4 orders of $1.7 billion, up 14% year-over-year for a 1.0x book-to-bill ratio. The $7.7 billion backlog provides 1.8x coverage of manufacturing revenue on our 2026 estimates.
We expect delivery growth stepping up 5% year-over-year to 180 business jets in 2026, following 171 deliveries in 2025. Key contributors include the Citation Ascend which entered service in December 2025, as well as expected certifications for the 525 and Denali in 2026. The Ascend midsize jet replaces the XLS Gen 2 with a $16.725 million list price.
Aviation margins are expected to improve to 11.6% in 2026E from 11.1% in 2025 (including eAviation recast), expanding to 12.2% in 2027E. Every 10 business jet deliveries is worth approximately $0.10 to EPS, while every 50 basis points of Aviation margin is worth $0.17 to adjusted EPS. The company took advantage of the production pause to improve its Wichita production line efficiency.
Used Jet Market Remains Relatively Healthy
Used Cessna inventories were 2.2% of the active fleet in January 2026, down from all-time low of 1.4% in February 2022. Cessna used jet pricing was up 32% year-over-year in January at $7.9 million. While inventories are up significantly year-over-year and there is slight moderation in used jet pricing, each remain supportive of new jet sales and much healthier than the 2008-2009 period.
Textron Aviation's aftermarket accounted for 34% of segment revenues in 2025. Aftermarket revenues increased 6% year-over-year as aircraft utilization remains strong, supported by fleet growth, pricing, and upgrade programs. We estimate 6% growth in 2026E, following 6% in 2025, supported by both service centers and parts demand.
Bell: FLRAA Program Acceleration and Near-Term Margin Pressure
Bell accounted for 29% of total company revenues in 2025 and 28% of segment manufacturing profits. The FLRAA (Future Long-Range Assault Aircraft) program was awarded to Textron Bell in December 2022, representing a $70 billion program (up to $100 billion including foreign military sales) to replace the UH-60 Black Hawk helicopter.
The program has been accelerated with LRIP deliveries now beginning in 2028, pulled forward from the original 2030 timeframe. Six prototypes are expected to be delivered for first flight in the 2026 timeframe (government fiscal year 2027), with initial operational capability targeted for 2030. The company completed Preliminary Design Review during Q2:24 and received Milestone B in Q3:24.
FLRAA Cumulative Catch-Up Charge
The LRIP portion of the contract (8 firm fixed price aircraft for Lot 1) is now expected to begin delivering in 2028 after 8 cost-plus deliveries including 6 prototypes and 2 Limited User Test articles. LRIP units were priced in 2022, and management is pointing to a $60-110 million charge at contract signing likely in Q4:26 or Q1:27, now included in our estimates.
There is also a proposal for 12 Lot 2 and 20 Lot 3 LRIP units being negotiated. These may be on firm fixed price terms in line with Lot 1, adding to estimate-at-completion risk in the out years. However, this is offset by accelerated revenues and the pull forward of full-rate production to the early 2030s at accretive margins.
We estimate the MV-75 FLRAA program is worth $15 per share to Textron on our estimates, with the pull forward of production offsetting the near-term cumulative catch-up charge.
We assume a 6.7% margin in 2026E including this charge, rising to 8.6% in 2027E incorporating a reset booking rate of approximately 1% versus estimated 2% today. The program generated $1.5 billion in revenues in 2025 at approximately 2% margin and is expected to stabilize around this revenue level through 2028E.
Commercial Bell Deliveries
Following 172 commercial deliveries in 2024, Bell experienced a 2% delivery decline in 2025 to 169 units driven primarily by lower 505 deliveries, while the 429 showed continued demand strength with deliveries up 26% year-over-year to 29 units. We assume 525 certification in 2026 with 8 deliveries growing to 15 by 2028.
In January 2026, Bell was downselected for the second phase of the Army's Flight School Next program, estimated as a $1 billion program value, with the 505 helicopter as the training aircraft. Initially the program will involve delivering 200-225 helicopters over a 4-5 year period, which at a $1.5 million average selling price would imply approximately $70 million of annual revenues at the midpoint for deliveries.
Free Cash Flow Pressured by MV-75 Capex
Management guided 2026 manufacturing free cash flow at $700-800 million, down 21% year-over-year representing approximately 70% conversion, on $1.3-1.4 billion of operating cash flow and $650 million of capex versus $383 million in 2025. The $267 million incremental capex supports the pulled forward timeline on the MV-75 for the FLRAA program at Bell.
We estimate $736 million of FCF in 2026, including the incremental capex, a net working capital headwind of $256 million year-over-year, approximately 3% decline in net earnings, and neutral R&D tax impact relative to the $100 million benefit in 2025. Cash stood at $2.0 billion exiting 2025 with net leverage at 1.1x following approximately $700 million in debt paydown.
| Item | 2025 | 2026E | 2027E | Change 26E |
|---|---|---|---|---|
| Net Income | $1,098M | $1,069M | $1,213M | -$29M |
| CFO | $1,327M | $1,386M | $1,720M | +$59M |
| Capex | ($383M) | ($650M) | ($650M) | -$267M |
| FCF | $944M | $736M | $1,070M | -$208M |
| FCF Conversion | 86% | 69% | 88% | -17 pts |
Our estimates for 2026 factor in approximately $460 million of share repurchases versus approximately $820 million in 2025. The offset is a higher tax rate guided for 2026 of approximately 20.5% versus the 19.9% tax rate reported in FY25 (adjusted for eAviation recast). Net interest expense is expected to increase to $139 million in 2026 from $108 million in 2025.
Valuation & Price Target
We arrive at our $110 price target using three valuation methods, each applied to our 2027E estimates. Our blended approach yields a price target representing more than 25% upside to the current share price, despite near-term headwinds from the FLRAA charge and elevated capex.
- EV/EBITDA Method: Applying 9.8x to our 2027E EBITDA, representing a 35% discount versus the S&P 500 compared to a 3-year average discount of 28%, arrives at a price target of $111.
- P/E Method: Applying 15.2x to our 2027E EPS of $7.15, representing a 32% discount to S&P 500 versus a 3-year average discount of 32%, arrives at a price target of $108.
- FCF Yield Method: Applying a 5.5% free cash flow yield to our 2027E FCF of $1.1 billion, representing a 36% discount versus a 3-year average discount of 36%, arrives at a price target of $111.
Valuation Relative to Peers
Textron trades at a 47% discount to aerospace and defense peers on 2027E P/E and a 50% discount on 2027E EV/EBITDA. Major systems integrators including General Dynamics, Boeing, Northrop Grumman, and Lockheed Martin trade at an average of 20.1x 2027E P/E, while significant component suppliers including Honeywell, Hexcel, and Woodward trade at 26.1x on average.
On a market-relative basis, Textron is currently trading at a 46% discount to the S&P 500 on forward P/E versus a three-year average discount of 39%. On an EV/EBITDA multiple, the stock trades at a 39% discount to the S&P versus a three-year average discount of 38%. On a FCF yield basis, Textron trades at a 54% discount to the S&P versus a three-year average discount of 40%.
Investment Risks
Key Upside Risks
- Aviation order acceleration: Book-to-bill improving above 1.0x with strong net pricing opportunity as backlog rebuilds and supply chain constraints ease.
- FLRAA program acceleration: Further pull-forward of LRIP deliveries or additional lot awards (Lot 2/Lot 3) at improved terms could offset near-term charge impact.
- 525 and Denali ramp: Faster than expected certification and production ramp of new aircraft programs contributing incremental margin.
- Systems opportunity wins: Awards on programs including MARV, international demand, and expanded ATAC contracts.
Key Downside Risks
- Business jet demand weakness: Weakening corporate demand or supply chain disruptions leading to delivery delays and margin pressure.
- FLRAA cost overruns: Additional cost growth on LRIP fixed-price work beyond the $60-110MM charge already anticipated.
- Defense budget constraints: Reduced DoD spending or program cancellations impacting Systems and Bell military revenues.
- Industrial headwinds: Continued weakness in Golf and Turf markets with competitive pressure from Chinese imports despite recent tariff actions.
Investment Conclusion
We reiterate our Buy rating on Textron with a $110 price target, representing 27% upside from current levels. While near-term headwinds from the FLRAA cumulative catch-up charge and elevated MV-75 capex pressure 2026 estimates, we believe the shares offer compelling value at current levels given the company's position across attractive aerospace and defense end markets.
The Aviation business remains well-positioned with 1.8x backlog coverage, healthy used market dynamics, and improving production efficiency following the 2024 strike. Business jet deliveries are expected to grow 5% in 2026 to 180 units with further acceleration to 202 deliveries in 2027E. Aviation margins should expand from 11.6% in 2026E to 12.2% in 2027E as volume leverage and efficiency gains flow through.
At Bell, while the near-term FLRAA charge creates a $0.40 headwind to 2026 EPS, we estimate the program remains worth $15 per share to Textron's enterprise value. The acceleration of LRIP deliveries to 2028 from 2030 brings forward higher-margin full-rate production economics to the early 2030s. Commercial helicopter deliveries should stabilize with 525 certification providing incremental mix benefit.
Despite headwinds to free cash flow in the near term, Textron's historical discount to the S&P 500 at current levels justifies meaningful upside to shares. The stock trades at just 14x our 2026E EPS versus a peer average of 27x, representing a 48% discount.
Systems is positioned for accelerated growth in 2026-2027 driven by broad program support including GBSD, Ship-to-Shore connector, ATAC, and potential awards on MARV and other development programs. Industrial should stabilize following the Powersports divestiture with cost actions in Golf offsetting volume headwinds.
From a valuation perspective, Textron offers one of the most compelling risk/reward profiles in aerospace and defense. The stock trades at a 46% discount to the S&P 500 on forward P/E versus a 3-year average discount of only 39%, suggesting significant multiple expansion opportunity as near-term headwinds resolve. Our upside scenario of $150 assumes 10.4% segment margins and improved execution, while our downside case of $65 reflects significant FLRAA cost growth and weaker business jet demand.
We view the current pullback as an attractive entry point for long-term investors. The 2025-2027 EPS CAGR of 16% should drive multiple expansion as the market gains confidence in Aviation delivery momentum, FLRAA execution post-charge, and free cash flow inflection in 2027E as elevated MV-75 capex normalizes. We maintain our Buy rating and $110 price target.
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