Textron Inc. (TXT) announced that its 4.5% Convertible Senior Notes, due 2013, will remain convertible at holders’ discretion till March 31, 2013. This was owing to the fact that out of the last 30 consecutive trading days that ended December 31, 2012, Textron’s common stock price for at least 20 trading days surpassed the conversion threshold price of $17.06 per share (130% of the applicable conversion price of $13.125 per share).
Textron had issued $600 million of the said 4.5% Convertible Senior Notes in May 2009 with a maturity date of May 1, 2013 and interest payable semi annually. Textron has the option to settle the conversion by cash or shares or a combination of both.
We believe Textron should do well in its commercial aerospace businesses with the gradual recovery in the economy. The improving fundamentals in the commercial aerospace industry should bode well for Textron’s Cessna jets and Bell Helicopter businesses going forward. Fortunes at Cessna will likely improve mainly through high demand for light cabin business jets. Also, in the near term, growth at Bell will be guided by a judicious mix of military and commercial business from the V-22 Osprey and H-1 helicopters. Textron Systems will also experience growth coming from the government focus on UAVs (unmanned aerial vehicles) and ASVs (armored security vehicles).
Also, Textron’s geographically diversified network of aircraft, defense and intelligence, industrial and finance businesses negates any specific business risk. The company is known around the world for its most recognizable and valuable brand names, such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO and Greenlee. The company has a strong presence in diverse areas of business jets and other general aviation aircrafts, helicopters, aircraft engines, golf carts, turf maintenance equipments, electronic test equipments and blow-molded fuel tanks. Textron continues to enjoy a strong backlog at its business divisions.
the Textron balance sheet remains stable with a long-term debt-to-capitalization of 55.9% at the end of the first nine months of 2012. The company also ended the first nine months of 2012 with cash holdings of $1.2 billion, which, along with its expected receivables liquidation, would be enough to maintain a good liquidity profile of the company. Following the shedding of a $496 million long-term debt in the first nine months, Textron’s balance sheet improved leaving approximately $1.8 billion of long-term debt.
We currently have a long-term Neutral recommendation on Textron. The stock carries a Zacks #4 Rank (Sell rating) in the short run, primarily due to the high-level of current valuation. The stock is now trading at a premium in terms of forward earnings estimates compared with its diversified peers like Honeywell International Inc. (HON) and Carlisle Companies Incorporated (CSL).
Based in Providence, Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircrafts, automotive engine components and industrial tools.
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