Textron: Flying Higher and Higher

| About: Textron Inc (TXT)

You may well never have heard of Textron Inc. (NYSE:TXT), but you're almost certainly familiar with its major divisions: Cessna, Bell helicopters, and E-Z-Go golf carts. The company has just come off a very strong second quarter, and has released very positive estimates for the rest of 2007. The stock was rising steadily until investors took their gains last week and sent the stock down 10 points during the course of the week.

My guess is this sell-off will just bring more investors to the table -- eventually. On the eve of the second-quarter results, Goldman Sachs [The Goldman Sachs Group, Inc. (NYSE:GS)] issued a strong buy report on TXT, raising its target price from $127 to $140. The stock subsequently lost ground, as I just mentioned, but I think the Goldman analysts are right.

With globalization and increasing demand for business travel, TXT's Cessna division will continue to grow (the second quarter brought Cessna a revenue increase of around 20% and a profit increase of nearly 30% over the second quarter of 2006), and the numbers for the first six months of 2007 are about the same. Meanwhile, Bell's helicopters are in growing demand, and TXT's military contracts continue to expand, while the financial sector has never had a losing quarter. Its industrial segment continues to show steady growth as well.

In other words, this is a company with several diverse lines that are all doing well right now and show no signs of slowing down. There is some risk among Bell's V-22 Ospreys, which have gotten some criticism over their performance in Iraq, but right now there's no sign the Osprey program will be canceled any time soon. Meanwhile, the company has enormous backlogs from 2006, which will keep revenues steady for the foreseeable future.

In the wake of the strong second quarter report, TXT announced it was raising its dividend, and the company has regularly repurchased shares, showing that the management is committed to returning value to investors. (The company CEO, Lewis Campbell, did sell 40,000 shares right after the results were released, but I have always believed that these senior executives need to diversify a small amount of their holdings out of just one single stock.) I think this is a good long-term bet, especially after a split takes place at the end of August.

In fact, I speak not just from the perspective of a stock analyst who has examined the numbers and the comparable companies in the universe of Textron; I am also someone with personal Textron experience. I worked on projects for Textron in the late 1980's while I was at Morgan Stanley (NYSE:MS) and recall vividly the seriousness and professionalism of this company's management. I also hired Textron's E-Systems to complete the interior of a private business jet in 1998. I went to its headquarters in Waco and saw the level of electronics and engineering detailing that goes into each airplane it works on --- including Air Force One!

Type of Stock: One of the most successful and respected aerospace companies in America, in the middle of a great year.

Price Target: I think TXT has room to keep growing, even all the way up to the $140 predicted by Goldman, and I would try to buy the stock under $110. It's currently trading at $114. If the price is just too high for your taste, wait for the split.

TXT 1-yr chart:

TXT