On September 14, Textron (NYSE:TXT) unit Textron Aviation and Merlin, an autonomous flight software company, introduced a cargo plane concept with nobody at the controls. Called the Cessna SkyCourier UX, it marries an FAA-certified twin-engine turboprop to Merlin’s autonomy software. The goal is keeping dispersed military forces supplied when normal supply routes get too risky. It is a concept, not a product, so the bigger question is what it says about the company behind it.
Room Where the Pilot Sat
Start with the gap this plane is chasing. Small cargo drones often cannot haul enough to sustain troops, while big military airlifters are overkill for many short runs. The SkyCourier UX would sit in the middle, carrying roughly 6,000 pounds, or up to three LD3 cargo containers, and landing on unimproved strips. Without a crew, designers could turn cockpit space into extra cargo room, with a big nose opening for loading. Merlin’s CEO, Matt George, says its software has logged hundreds of autonomous flights across Beechcraft King Airs, Cessna Caravans and other planes. And because the base aircraft is already certified and in production, Textron would lean on an existing factory and support network instead of starting over.
The rest of the business gives the concept a decent runway. When Textron reported second-quarter results on July 28, revenue rose 3% to $3.8 billion. Adjusted earnings of $1.62 per share topped the $1.55 posted a year earlier, so growth is reaching the bottom line. Management also held its full-year adjusted earnings target at $6.40 to $6.6 per share. Inside Textron Aviation, commercial turboprop deliveries climbed to 44 from 34, and the segment’s backlog stood at $8 billion, so there is real demand to build on.
A Concept Isn’t a Contract
Nothing in the announcement points to a customer, an order, or a delivery date. The companies describe the SkyCourier UX as an exploration, and Merlin’s engineering studies and evaluations are still meant to build confidence in autonomous cargo flights. Those are early steps for a plane that would have to earn trust in contested military environments.
The current numbers are more mixed than the headline growth suggests. Textron Aviation’s second-quarter revenue rose just 1%, and jet deliveries fell to 40 from 49. Segment profit slipped 3% to $165 million, blamed on manufacturing inefficiencies and weaker volume and mix, so the division grew sales without growing earnings. Cash flow was softer too. Manufacturing cash flow before pension contributions came in at $154 million, a steep drop from $336 million a year earlier. On top of that, the full-year outlook assumes extra funding for the MV-75 Cheyenne program. Without it, adjusted earnings could fall by $0.20 to $0.30 per share.
Cheap, But Not Loved
The number of hedge funds holding Textron slipped from 40 in the prior quarter to 34 in the most recent one, a sign some institutional money is trimming its position. Short interest sits at 5.10% of the float, which points to a real if modest bear camp. Some of that may be hedging rather than outright pessimism. At a forward P/E of 10.79, as of September 18, the market is expecting little growth from Textron. Yet that low price has not kept funds from leaving, and short sellers are still in the stock.
Blueprint or Sideshow?
Textron is pairing a proven airframe with autonomy that is still being studied, while Aviation profit and the company’s manufacturing cash flow both slipped in the same quarter. Bulls need defense customers to turn interest in contested logistics into real orders. The bear case only gets stronger if aviation profit keeps sliding or the Cheyenne funding never arrives. Until an order or a funding decision lands, the stock sits between a low multiple and a plane that is still a concept.
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
Hedge Fund Resource Center