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Is a Beat in Store for Transdigm Group (TDG) Q2 Earnings?

Zacks Equity Research

Transdigm Group Incorporated TDG is set to report second-quarter fiscal 2019 results on May 7, before market open.

In the last reported quarter, the company delivered a positive earnings surprise of 14.93%. Moreover, it surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 5.31%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Transdigm Group is likely to beat estimates in the fiscal second quarter. That is because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Transdigm Group has an Earnings ESP of +2.27%.

Zacks Rank: The company currently sports a Zacks Rank #1, which along with a positive Earnings ESP indicates a possible earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into earnings announcements.

Transdigm Group Incorporated Price and EPS Surprise

Transdigm Group Incorporated Price and EPS Surprise | Transdigm Group Incorporated Quote

Factors at Play

Commercial after-market sales has been consistently boosting Transdigm Group’s top-line performance. Also, the company is expected to benefit from robust air passenger growth and freight traffic owing to rapid increase in global trade activity. We may expect this momentum to benefit the company’s top line in the quarter to be reported.

Since the beginning of the fiscal 2019, Transdigm Group has been witnessing a rebound in its OEM business, which otherwise generated weak performance in fiscal 2018. As the company’s business jet delivery forecasts continue to look positive for the current year, we may expect the company’s fiscal second quarter results to reflect solid OEM revenues.

Apart from these organic sales contributions, Transdigm Group’s disciplined acquisition strategy has been a valuable top-line contributor for the company. In March 2019, Transdigm Group completed the acquisition of Esterline Technologies for $4 billion to expand its platform of proprietary and sole source content for the aerospace and defense industries, including significant aftermarket exposure. In the quarter to be reported, we expect this buyout to be partially aid revenue growth. In line with this, the Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $1.14 billion, indicating an annual improvement of 21.7%.

In context to earnings performance, the company is likely to gain from lower interest expense due to a slight decline in the projected LIBOR rate for 2019. Also, favorable impacts from the latest U.S. tax reforms are anticipated to aid the company’s bottom-line performance. Considering these factors, we may expect second-quarter fiscal 2019results to duly reflect improved earnings for the company. The Zacks Consensus Estimate for earnings stands at $3.86 per share, suggesting an annual improvement of 1.9%.

Recent Defense Releases

Textron Inc. TXT reported first-quarter 2019 earnings from continuing operations of 76 cents per share, which surpassed the Zacks Consensus Estimate of 70 cents by 8.6%.

Lockheed Martin Corp. LMT  delivered first-quarter 2019 earnings of $5.99 per share, which surpassed the Zacks Consensus Estimate of $4.29 by 39.6%.

Spirit AeroSystems Holdings, Inc. SPR reported first-quarter 2019 adjusted earnings of $1.68 per share, which surpassed the Zacks Consensus Estimate of $1.67.

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