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Textron's "Conviction Buy" Kiss From Goldman Sachs
Probably the best performing stock in the S&P today is that of private-jet maker Textron, which received a double whammy of upgrades from taxpayer darlings Morgan Stanley and Goldman Sachs. Yesterday, MS upgraded the stock from an Underweight to an Overweight, passing Neutral, and putting a $25 price target on the stock. Today, Goldman, never too far behind, especially in names in which it is significantly axed in CDS and other OTC products, upgraded the Cessna maker from Neutral to Conviction Buy, with a price target increase from $16 to $23.
Just what drove the two firms to suddenly see such previously undiscovered value in a company in which sales of its flagship Cessna Citation airplane account for almost 40% of its $10 billion annual revenue (total Aircraft sales accounted for $5.7 billion of 2008 revenue, of which Citations represented 72%)? Perhaps it is the flourishing private jet market now that Vik Pandit can easily go out and buy the much maligned Dassault Mirages that almost cost him his head in January? Hm, maybe not. Is it its "stable" Industrial business which is such an alleged cash cow, that none other than Goldman was hired to sell the division in February according to Debtwire, yet the lack of any subsequent transaction indicated the "chirping" obtained as a response of any and none acquisition interest on behalf of possible buyers. Is it is experienced executive team, which saw the forced departure of CFO Ted French back in February after singlehandedly decimating the company's stock price? Oh wait, it must be all those takeover rumors spreading in April that the company was to be imminently acquired by some shady Saudi concern? Nah, that turned out to be a case of rumor-mongering which ended up costing the source his life.
Well, if not all that, then where will all this pent up value come from? Let's check out the Goldman report:
Catalyst:
The following could act as positive catalysts and drive shares higher, 1) TXT’s Analyst Day on Sept. 9, 2) improved Auto production driving upside at Industrial, given that 60% is Auto, 3) business jet data continuing to improve, 4) asset sales or additional liquidity related events could occur by year-end as credit markets keep improving.
A year ago, each of Textron’s businesses were going the wrong way: Corporate profits and the Industrial economy were rolling over, which had negative implications for Cessna and Industrial, Financials were facing severe challenges which had negative implications for TFC, and a leadership change was about to take place in Washington with negative implications for Defense and therefore Bell and Systems.
Today, we see the exact opposite occurring: Corporate profits and the Industrial economy have likely troughed and are turning the corner which should drive improving data and results at Cessna and Industrial. Credit markets and financial conditions are improving, which should drive slower losses at TFC and allow the company to smoothly exit the business over time. And while we remain negative on Defense, we can now see how Bell and Systems are better positioned than other Defense companies under the priorities of the current Administration, and in aggregate can grow in a declining budget environment.
So in essence - yet another strong upgrade based on assumptions of a mean reversion in an economy that is still struggling to define the bottom of what the new normal is, where 10% unemployment will be standard, yet where corporate executives are expected to scrap their existing fleets of Cessnas every 5 years to keep up with the Joneses. And, just for kicks, as it has worked so well with the overall massively squeezed market, Goldman throws a little Hopium in there, as "cancellations are likely to improve going forward."
But hold on a second, wasn't Textron sued less than a month ago for alleged misrepresentation of its backlog? It is good that Goldman has such better visibility into the order book than even the corporate office.
And speaking of the corporate office, it's job has been hard, but not from making planes, but rather from working overtime handingout pink slips. According to a recent presentation, the company fired 50% of its employees, has instituted 7 weeks of furloughs, has closed its Bend, Oregon facility, transferred two other facilities, and has consolidated various leases. Surely, these are the hallmarks of a company that can not wait to get back to the historical trendline, and is aggressively gearing up to do so. If, however, by gearing up you mean firing half the staff, then yes, you are correct. This does not seem to preclude Goldman from believing that the current depressed book-to-bill ratio must be indicative of something being afoot.
So maybe when looking at mean reversion, the chart below is the right one to contemplate:
And lest we forget, Textron is still the proud owner of that cancer better known as Textron-Financial, its captive financing division, which almost caused the bankruptcy of the firm when its CDS was trading at all time wides last year and virtually everyone had thrown in the towel on the name. But, of course, "credit conditions have improved."
So what are the potential downsides in this trade that seemingly can do no wrong? From Goldman:
Key Risks:
1) a reversal in credit market improvements, 2) a lack of investment at Cessna, 3) the impact of the broader economic environment.
In other words, the things that brought the firm to the edge, are the same that will likely bring it to the edge again, of course if one were to scrap the Hopium, V-shaped recovery expectations and any potential conflicts of interest. Which begs the question, what are the relevant disclosures? We present them below:
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the second most recent month end: Textron Inc. ($15.50)
Goldman Sachs has received compensation for investment banking services in the past 12 months: Textron Inc. ($15.50)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Textron Inc. ($15.50)
Goldman Sachs has received compensation for non-investment banking services during the past 12 months: Textron Inc. ($15.50)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Textron Inc. ($15.50)
Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Textron Inc. ($15.50)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Textron Inc. ($15.50)
Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: Textron Inc. ($15.50)
Goldman Sachs makes a market in the securities or derivatives thereof: Textron Inc. ($15.50)
Goldman Sachs is a specialist in the relevant securities and will at any given time have an inventory position, "long" or "short," and may be on the opposite side of orders executed on the relevant exchange: Textron Inc. ($15.50)
Goldman Sachs holds a position greater than U.S. $15 million (or equivalent) in the debt or debt instruments of: Textron Inc. ($15.50)
But of course, specualtors, pardon, investors are well aware of all these issues as they lap up TXT stock all the way into the stratosphere, where Morgan Stanley and Goldman, will, for whatever reason, be more than happy to see it, and do with it as they see fit.
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guess you didn't see that GS plans to pay bonuses in Cessna planes.
Tax GS and MS on the fiatmoney received from Banana Ben to manipulate and speculate and trade in this crazy casino....pump, pump Banana Ben...
I'll be placing this stock in my "Conviction Short" list.
@ VLEE,
I was thinking the same thing as soon as I read the headline.
Those January $20 puts just got a WHOLE lot sexier, IMHO...
blah, blah, blah...
Goldman and Morgan must have made a deal. "You give our employees a discount on a new jet and we'll upgrade you."
it's a big scam
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Maybe Goldman and MS are getting ready to place a large order for jets w/ OUR tax money. With 100 million/day profits, they can afford to have a couple of extra jets.
This is the nugget -
Goldman Sachs is a specialist in the relevant securities and will at any given time have an inventory position, "long" or "short," and may be on the opposite side of orders executed on the relevant exchange: Textron Inc. ($15.50)
So they were busy accumulating. Now time to upgrade and slowly distribute.
+1
Long list of possible conflicts of interest....
I looked at this one for quite a while. The debt seems to be just too much and their military offerings are border on the whimsical, like the Osprey.
What attracted me to it initially was China developing a municipal airport system.
And just maybe China will drop the flight level meters and QFE. How is AvTrip Points spelled in Mandarin?
It rubs the Goldman skank on the skin or else it gets the hose again.
ROFL!!!!
"assumptions of a mean reversion"; that sounds like something you would beat your kid over.
GOLDMAN CREDIBILITY ZERO! "The recession is over" -Jans (GS)
GOLDMAN CREDIBILITY ZERO! "Economy improving"-Abby (GS)
GOLDMAN CREDIBILTY ZERO! "Textron Upgrade" (see above)
GOLDMAN CREDIBILTY ZERO! "We huddle but it's not what you think"
GOLDMAN CREDIBILITY ZERO! "SLP,SIGMA X, We provide liquidity..100M/day"
Any question as to Goldman's Sachs Reputation? Zero!
- We were acquired by Goldman Sachs long ago:
"It is an established fact that the United States Federal Government has
been dissolved by the Emergency Banking Act, March 9, 1933, 48 Stat. 1,
Public Law 89-719; declared by President Roosevelt, being bankrupt and
insolvent. H.J.R. 192, 73rd Congress m session June 5, 1933 - Joint
Resolution To Suspend The Gold Standard and Abrogate The Gold Clause
dissolved the Sovereign Authority of the United States and the official
capacities of all United States Governmental Offices, Officers, and
Departments and is further evidence that the United States Federal
Government exists today in name only."
"The receivers of the United States Bankruptcy are the International
Bankers, via the United Nations, the World Bank and the International
Monetary Fund. All United States Offices, Officials, and Departments are now
operating within a de facto status in name only under Emergency War Powers.
With the Constitutional Republican form of Government now dissolved, the
receivers of the Bankruptcy have adopted a new form of government for the
United States. This new form of government is known as a Democracy, being an
established Socialist/Communist order under a new governor for America. This
act was instituted and established by transferring and/or placing the Office
of the Secretary of Treasury to that of the Governor of the International
Monetary Fund. Public Law 94-564."
The Federal Reserve System is a sovereign power structure separate and
distinct from the federal United States government. The Federal Reserve is a
maritime lender, and/or maritime insurance underwriter to the federal United
States operating exclusively under Admiralty/Maritime law. The lender or
underwriter bears the risks, and the Maritime law compelling specific
performance in paying the interest, or premiums are the same.
We the People are the tenants and sharecroppers renting our own property from a Sovereign in the
guise of the Federal Reserve Bank.
GS and MS are BS. This is a suckers bet for those that can't read.
Who knew that GS and MS were owed money by Textron :-)
Could a secondary offering be in the offing in order to pay down that hypothetical debt?
Buy low, sell high. Pump and dump. Sell CMOs and short them. The world keeps spinning...
I'm afraid I missed the GS "trading huddle" on this one. ;( Lovely story, spun by the masters. Just add Abbe Joseph Cohen and it would be a complete "fairy tale."
bet they huddled over this one a week ago, MS bull didn't stick yesterday so GS had to pump today
Still no love for "Revolutionary Struggle" out of Greece?
That is the MOST relevant story of the day!
A bunch of 'rebels' exploded a bomb outside the Greek stock exchange!
I guarantee you, they are much more afraid to continue with "The Plan" in Greece than America right now.
ZeroHedge, get in contact with these guys, see what their motivation was!
'09 consensus earnings estimates have gone from $0.24 90 days ago to a loss of $0.05 currently. '10 estimates have gone from $0.90 to $0.80 over the past 90 days. So it's trading at the bargain multiple of 21.4x forward estimates. Also noteworthy is '10 revenue is expected to decline from '09 expected revenues.
Very strange to put TXT on a conviction buy list with those trends in estimates and an already stretched valuation.
"Felony Conviction Buy" ?
Bravo Bravo
cmon tyler. take it easy. it only has a p/e of 171. relax, dude.
How does one spell Goldman Sachs? W-H-O-R-E-S.
"Probably the best performing stock in the S&P today is that of private-jet maker Textron."
You are right, TD. Today's top gainer in SP500 is TXT, followed by NEM and MOT.
nice job, Tyler
glad to see that old chinese wall between research and banking/prop trading so clearly maintained at good old Government Sachs
do the textron execs really not "get it" yet? do they not understand that "some banksters" are about to sell their shares into the dirt?
pump & dump
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
"So maybe when looking at mean reversion, the chart below is the right one to contemplate:"
LOL - One of your best GS bashers to date TD. Absolutely wonderful post.
Probably the biggest negative for TXT is that Lenny Dykstra is no longer DIP on his own Chapter 11 filing (the judge is appointing a receiver for his own good). There goes another devoted lessor of private aircraft....
and who is it ____________ that operates the largest private aircraft fleet in the world? fill in the blank and the circle of life is completed.
And that operator has how many gust locks permantly engaged while the former quarter share and mar-key phone card owners now suffer at the unwashed, blue latex-gloved-hands of a KEWR terminal A,B or C TSA groper?
google says NetJets owned by Warrent Buffet. Is that right?
Bingo. Keep digging, it gets better.
pump and dump. gonna fall.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
pump and dump. gonna fall.
pump and dump. gonna fall.
T. D. 4 Prez, subito!
For Immediate Release
WASHINGTON DC - Secretary of Transportation Ray LaHood today announed the initiation of a "cash for clunkers" for corporate jets. Flanked by the CEOs of Textron and Goldman Sachs, the former Illinois congressman predicted that the new program would stimulate private investment in corporate aircraft.
And now the dorks on Lost Money say it's a screaming buy. Obviously a perfect contrarian indicator - short at will.
isn't gs a 50% stakeholder in cessna crosstown rival hawker beechcraft, who just might be in more dire straights than cessna?
well, there is a new $300 mil in their cash flow balance sheet. I wonder whether that was a bond sale or stocks offering. I remeber looking at their shares when they were in the news(their preffered was showing everyday up or down on the google finance)and thought of buying the shares,but there was somethig that I didn't like about their balance sheet(can't remeber it). And of course then there was a rumor of the sale to UAE which I knew to be false simply because they have military product(just look at the port management sale effort to the UAE that was unseccessful,to their benefit it turns out since that was back at the hight of the economy)
Gotta love the short opportunity in TXT this am...Let's see how much TXT common Goldman can unload before 10:30am...
Textron is a funny story... not too many option for it here one out