Textron’s ( NYSE: TXT ) stock may lose 8%-10% of its value if the U.S. Army doesn’t award a contract this month to the company’s Bell unit for a next-generation helicopter, analysts at Bernstein said in a report Wednesday. Bell is pitted against Lockheed Martin’s ( NYSE: LMT ) Sikorsky Aircraft to make what the Army calls the future long-range assault aircraft.
Revenue for making the aircraft could possibly total more than $40 billion through 2050, considering that helicopter programs can last decades. The new helicopter is intended to replace the Sikorsky UH-60 Black Hawk that was first delivered in 1978 and will continue to be made through at least 2028.
“The investor view has been that Textron is the strong favorite,” Douglas Harned, analyst at Bernstein, said in the report. “While Textron could well win, there are many facets to this competition, which could pull the decision in either direction.”
The choice is a toss-up, considering that Textron’s and Lockheed’s aircraft meet all of the Army’s requirements, he said. Textron’s tilt-rotor V-280 is faster and has a greater range than Lockheed’s Defiant X. However, Lockheed argues that its helicopter is more maneuverable in landing zones and can operate in the Black Hawk’s footprint.
Textron’s stock may fall 8%-10% if the Army awards the contract to Lockheed Martin, assuming that the market is pricing in an 80% chance that Textron will win, according to Bernstein. Given that Textron is favored, its stock may only rise 2%-3% if the contract goes to Bell.
Lockheed ( LMT ) has less than 2% of possible upside if Sikorsky wins the contract, considering that the helicopter program would be a small part of its overall business. Losing the contract would have a negligible effect on the stock, according to Bernstein. Boeing ( NYSE: BA ), which is a subcontractor to Lockheed, also would be minimally affected.
Bernstein’s discounted cash flow model estimates the present value for the helicopter program to be $1 billion-$2 billion, depending on the assumed discount rate and terminal value. Most of the revenue for the program will come after 2030, which requires significant discounting in any estimate.
“Sentiment could cause short-term share price movements to be more pronounced than the present value we have described above,” according to the report. “A Textron loss will mean a loss of operating leverage elsewhere at Bell and likely weaken its ability to compete on future programs. For Lockheed Martin, this program is important as a source of growth, given declines elsewhere in the company.”
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Textron could fall 8%-10% if Army chooses rival for new helicopter, Bernstein says