Textron Gets Some Good News
Jun 19th 2012 1:53PM
Updated Jun 19th 2012 1:58PM
The defense industry has been losing its shine lately, thanks to Pentagon budget cuts. However, there is one parallel industry that seems to be picking up in a big way -- aerospace. The recent production and revenue numbers posted by Boeing provide substantial evidence of the growing commercial jet industry. And now we have none other than Warren Buffett boosting the scenario a bit more for U.S.-based planemaker Textron (NYS: TXT) .
Buffett's Berkshire Hathaway (NYS: BRK.A) is spending $9.6 billion to purchase 425 business jets for its private jet-sharing company, NetJets. Bombardier and Textron will fulfill this order, with deliveries starting in 2016. Although a big chunk of the order will be fulfilled by Canadian Bombardier, Textron gets to build 150 of the planes.
Textron's aerospace company, Cessna, reported 20% year-over-year first-quarter growth, and it accounts for more than one-fifth of the company's total revenue. It normally sells its Citation Latitude jets for a retail price of $14.9 million, which should enable the company to earn revenue of around $2.2 billion from this deal. However, plane manufacturers are known to give substantial discounts on bulk deals. Even then, this is likely to provide a significant boost to Textron's top line.
A year ago, NetJets made a huge $6.7 billion purchase from Bombardier. Interestingly this time, Berkshire added Textron to its supplier list. The company aims to take advantage of cheap prices and added discounts currently associated with jet sales.
As for Textron, the company can safely bank on these incremental growth figures, without worrying about order cancellations, given NetJets' clear long-term fleet plan and proven reliability.
The Foolish bottom line
Textron's big order puts it one up on its peers at the moment. The company has a sustainable backlog and a Warren Buffett nod, which makes it doubly attractive. Add Textron to your watchlist to watch this stock closely. Click here, it's free!
At the time this
article was published Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Textron. The Motley Fool has a disclosure policy.
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