On Dec 19, we upgraded our recommendation on aircraft components company TransDigm Group Incorporated (TDG) to Neutral based on its improved earnings prospects. This leading designer, producer and supplier of highly engineered aircraft components has been witnessing rising earnings estimates on the back of strong fiscal fourth-quarter 2013 results, an improved fiscal 2014 guidance and positive synergies from acquisitions.
Why the Upgrade?
On Nov 15, TransDigm reported fourth-quarter fiscal 2013 adjusted earnings per share of $1.75, which stormed past the Zacks Consensus Estimate of loss of 18 cents. The company’s revenues in the quarter were $539.7 million, reflecting a year-over-year increase of 16.7%. Organic net sales also grew 5.6% from the prior-year period, driven by increase in volumes from commercial original equipment manufacturer (:OEM) and defense.
Following the release of fourth-quarter results, the Zacks Consensus Estimate for fiscal 2014 has increased 0.6% to $6.53 per share. Moreover, the Zacks Consensus Estimate for first-quarter 2014 has also increased marginally from $1.61 to $1.62 per share.
The company has made a number of strategic acquisitions in the quarter that include Arkwin, AmSafe, Aerosonic and Whippany and has successfully integrated businesses. Recently, the company completed the acquisition of Airborne Systems Inc from Metalmark Capital, in an all-cash deal valued at approximately $250 million.
Furthermore, its financial performance continues to reflect the ability of its proven operating strategy to consistently create real intrinsic value for shareholders. The company’s strong free cash flow and well-planned capital structure will also likely enhance shareholder value.
Other Stocks to Consider
TransDigm currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace sector include Alliant Techsystems Inc. (ATK), B/E Aerospace Inc. (BEAV) and Precision Castparts Corp. (PCP). While Alliant Techsystems carries a Zacks Rank #1 (Strong Buy), B/E Aerospace and Precision Castparts holds a Zacks Rank #2 (Buy) each.