No. of Recommendations: 2
Hi everyone,

Textron reported earnings this morning (http://finance.yahoo.com/news/Textron-Reports-First-Quarter-...) and shares are down right now about 2.5% because of, early reports say, disappointing Cessna deliveries (http://www.reuters.com/article/2011/04/20/textron-idUSN20273...).

However, it reported a profit instead of a loss last year and my thesis is working out just fine. Just bought some more shares recently after noting that TTM Cessna revenue seemed to have bottomed out and was turning upward again, the last of the 4 segments to do so. It's continued that trend this quarter and the other 3 segments are also moving upward. https://spreadsheets.google.com/ccc?key=0Ah9lpnazQGRSdHZOWkN...

Cheers,
Jim
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No. of Recommendations: 0
Dear Jim

I have been following TXT since your article. There have been some interesting developments which might affect how you view purchasing another third at today's price of 22.50.

Below a link to an article at the Financial Times -

http://www.ft.com/cms/s/0/35332a7c-988f-11e0-94d7-00144feab4...

Any thoughts?

Cheers back to you

aitraders
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No. of Recommendations: 0
Hi aitraders,

Thanks for the article. Quite interesting.

Over the past month or so, I've let the tracking of current positions slip a bit in the MUE port. (A big part of that was the time taken up studying for the CFA level 2 exam.) With that time sink now behind me for a while, I've been catching up on the port positions, but hadn't yet gotten around to Textron.

Of course, I wouldn't make any move toward a third purchase unless I had caught up, so I hope I would have seen that before making any further decision.

I can understand letting the Cessna CEO go for spending the money sooner than was probably needed, leading to a larger than expected (by the parent, at least) loss. Misjudging something that large is pretty significant. The replacement seems to be a good choice on the surface; at least he has industry experience. We'll have to see how that works out.

Over the longer term of the next couple of years, I don't think the thesis is in trouble. It should rebound. Note the comment about trailing corporate profit recovery by about 2 years and being about 18 months into the current cycle. Implies stronger results about a year from now, if not a bit sooner (though I'm not holding my breath). The Citation 10 will also help.

At $22.68 (last night's close), 2.9% / 1.5% / 0% is the pattern (at 15% discount rate). Heh, actually, 2.9% is the past 5 year average for FCF growth.

We'll see. I'll be catching up on Textron this weekend and making a final decision on another purchase possibility for the month.

Cheers,
Jim
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I like Textron. I did a report on them in HS. I like their diversification with some military. I bought them for my CAPS portfolio to track them. At this price, I probably will wish that I had bought some shares because Cessna will come back, of that I have no doubt. and I like the fact that Textron caught the counting of the eggs before they hatched - good oversight. Just wish their dividend was better. I dont really like manufacturer's with little or no dividend. It keeps them honest IMO.

As you said, the article actually serves to confirm your thesis and actually give some insight into the timing of the expected turnaround. Will be fun to watch.

2 additions -

Have you looked at FNF. Book Value below 1, PE low, low cost structure, yet without the risk of typical real estate plays, number 1 player in their industry. I used to be in real estate and the reason I like this company is because if there is ANY business in real estate, then title insurance will benefit. One just cant get around it. Funny, but I like the fact that management lowered the dividend to give them cash flexibility. It still pays a 3.1 % yield and when housing starts rebound, then they should benefit handsomely. If interest rates go up, they should also benefit. Anyway, I think the thesis is simple - the question for me is, is whether or not it passes the MUE calculations.

I know you have a full position in RIG. I am curious whether or not you looked at Noble (NE). I have followed them a couple of years now, have a full position at around $33, and believe they are very well situated to grow by 20% over the next 5 years. Very large, very conservative with their capital, a bit of an aging fleet has been the knock along with GOM moratorium. But they are adding to the fleet steadily but surely and finding new locations for GOM rigs. Analysts expect their earnings to double next year. It is a company that I am very comfortable owning. But basically, they are in the same space as RIG with fewer distractions. Although it would be less diversification, I agree that deepwater drilling stands to be very strong in the next 10 years.

Happy Trails

aitraders
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Hi aitraders,

I'm thinking of buying some Textron for myself, as well. If that article's accurate, we'll see a flattening of the Cessna ttm revenue curve until new orders really begin to kick in.

Right now, I'm not looking at financials because FCF is completely the wrong way to look at them. However, I should probably broaden the view of what a messed-up expectation is. Certainly some banks selling below TBV are a bargain. Haven't looked at First Financial, though.

Last summer, for myself I bought a basket of oil related companies and Noble Energy was one of them. The whole sector got beaten down because of the BP / Transocean rig disaster. NE, DRQ, XOM, BP, RIG, SLB -- I think that's it. Earlier this spring, I sold NE, DRQ, and SLB to ease off on the oil industry exposure I had, but then I recently bought a starter position in National Oilwell Varco, so go figure. I'll have to look at NE for the MUE port, too, but with the few positions I've got right now, I don't want too much exposure to the oil industry.

Cheers,
Jim
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That's kind of what I thought. I had RIG earlier (before crisis) and NE, and sold off RIG to limit exposure.

I just feel that, at current price, they appear to be priced for 0 growth going forward, which is absurd. They have some new builds coming on line (the debt for which came at good rates), and are moving rigs out of the gulf, which should result in the rubberband effect for the current state of depressed earnings.

10 year summary from msn.com -

http://moneycentral.msn.com/investor/invsub/results/statemnt...



As far as FNF goes, I dont treat it as a financial. I look at it as a nuts and bolts player in the real estate business. A service industry. Any real estate transaction must have title insurance. They also do some specialty insurance.

I listened to the conference call and a couple of things stood out - current Q margins at 9% and they were very happy to 'get back' there. In a good market (current market is 1 Trillion, good market accdg. to CEO is 2T), they get 13-15% margins.

They have 5 billion in investments(escrow monies), 1.8 billion of which is not restricted actuarily. Kind of like PAYX, low interest rate environment is hurting ability to earn extra change.

Link to last Q-

http://www.investor.fnf.com/releasedetail.cfm?CompID=FNT&...

Things like no. of order opened and closed, Fee per title are pretty good tracking devices. And I think FCF plays just as important of a role as it does with any other service industry.

Gurufocus DCF with 1.74 in EPS and 15.46 BV and 10% growth next 10 years/3% terminal with a 15% discount rate spits out 32.58 IV.

http://www.gurufocus.com/fair_value_dcf.php

Dividend appears to be well covered and sits at 3.1%.

BTW, I havent dug into this at all, but they also own minority interests in:

FNF as a holding company also owns minor interest in 3 subsidiaries -

Ceridian (33%), a competitor to PAYX - http://www.ceridian.com/about_us_nav/1,6267,15591,00.html

REMY (47%) - http://www.remyinc.com/history.asp

American Blue Ribbon Holdings (47%) - http://www.abrholdings.com/our_company/about_ABRH.html

A little berkshire-esque, maybe?

ANYWAY, just some more food for thought since you seem to have so much time on your hands :))

aitraders
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