Textron Inc.TXTNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $139.34 per share(market-calibrated)

+40.7%

Upside to Fair Value

Current

$99.07

Pure Model

$142.52

Fair Value

$139.34

Bull Case

$168.76

Bear Case

$118.62

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.52%

Calibrated Growth

1.82%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $142.52.

What's Driving This Ratingfor TXT

✓

CapEx already efficient

CapEx at 2.54% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 8.29% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.2B (11.46% margin).

→

Moderate revenue growth

Analyst consensus projects -0.27% revenue growth, fading to 2.25% by Year 10. Revenue reaches $19.5B (vs $14.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $119.97/share (18.3x terminal FCF) while exit multiple gives $165.07/share (28.2x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.52% perpetual growth — 173bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.77% indicates efficient cash generation. FCF reaches $1.7B by Year 10 (8.97% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.98

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.90%

Cost of Debt

Pre-tax Cost of Debt2.94%

Tax Rate18.82%

After-tax Cost of Debt2.39%

Equity Weight (E/V)83.48%

Debt Weight (D/V)16.52%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (83.48% × 8.90%) + (16.52% × 2.39%)

= 7.83%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$14.8B	$16.2B	$17.2B	$18.2B	$19.5B
EBIT	$1.2B	$1.3B	$1.4B	$1.8B	$2.2B
Tax	$230M	$252M	$269M	$341M	$420M
NOPAT	$993M	$1.1B	$1.2B	$1.5B	$1.8B
+ Depreciation	$386M	$422M	$450M	$474M	$509M
- Capex	$375M	$411M	$438M	$461M	$495M
- Δ NWC	-$7M	$117M	$86M	$83M	$78M
Free Cash Flow	$1.0B	$982M	$1.1B	$1.4B	$1.7B
Discount Factor	0.927	0.798	0.686	0.590	0.471
Present Value	$937M	$783M	$745M	$827M	$822M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.7B

Terminal Growth Rate2.25%

WACC7.83%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$32.0B

PV of Terminal Value$15.1B

Exit Multiple Method

Year 10 EBITDA$2.7B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$49.3B

PV of Terminal Value$23.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.1B

PV of Terminal Value$15.1B

Enterprise Value$23.2B

(-) Net Debt$1.6B

Equity Value$21.6B

Shares Outstanding180M

Price per Share$119.97

Exit Multiple Method

PV of Projected FCFs$8.1B

PV of Terminal Value$23.2B

Enterprise Value$31.3B

(-) Net Debt$1.6B

Equity Value$29.8B

Shares Outstanding180M

Price per Share$165.07

Pure Model Fair Value

$142.52

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.83%	$179.78	$187.58	$197.58	$210.82	$229.20
6.83%	$154.83	$159.56	$165.32	$172.49	$181.67
7.83%	$135.81	$138.89	$142.52	$146.87	$152.16
8.83%	$120.59	$122.70	$125.14	$127.97	$131.31
9.83%	$108.01	$109.52	$111.22	$113.17	$115.41

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$118.62

19.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.22

Base Case

$142.52

43.9% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.98

Bull Case

$168.76

70.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.83

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.27%

Year 3 Revenue Growth4.15%

Year 5 Revenue Growth2.83%

Year 7 Revenue Growth2.60%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin8.29%

Terminal EBIT Margin13.00%

Tax Rate18.82%

Historical Capex / Rev2.54%

NWC / Revenue18.17%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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