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Bull Of The Day: Teledyne Technologies (TDY)

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Teledyne Technologies TDY is an excellent inflation play that provides shareholders with a nice mix of cyclical-value and innovation-driven profitable growth. Following its synergy-powered acquisition of FLIR System's last quarter, Teledyne is now positioned to drive significant double-digit top and bottom-line growth for the next couple of years. Analysts are increasingly optimistic about this stock, raising their near and long-term EPS estimates and propelling TDY into a Zacks Rank #1 (Strong Buy).

Teledyne's vast array of cutting-edge tech-driven products are utilized in critical industrial growth markets that heavily rely on its products. This allows the company to easily pass on its price increases to end markets with little to no margin deterioration.

TDY is an under-the-radar recovery stock that hasn't gained the market traction that I believe it deserves. You can see this from both its lack of analyst coverage and comparatively low daily volumes. Nevertheless, TDY shares are finally breaking out after 3 months of consolidation, with its most recent quarterly report being the impetus for its next leg higher.

As you can see from the chart below, TDY has been trading in a staircase pattern over the past 52-weeks. This peculiar trading pattern is not unusual for an overlooked stock such as this, as infrequent favorable headlines typically catalyze each step up. My next Fibonacci-derived price target, once TDY materially breaks above this $458 resistance level, is $495 on a technical basis. Still, the fundamental value is much closer to $525 or higher (16%+ upside from here).

TradingView
TradingView


Image Source: TradingView

Excellent Q2 Report Drives Bid

Teledyne Technologies (TDY) blew its Q2 earnings out of the park, demonstrating record revenues, margins, and profits that far exceeded analysts' expectations. This industrial innovator also significantly raised its full-year EPS guidance by 27% from its Q1 projections, reflecting management's positive organic growth and synergy outlook from the recent FLIR acquisition (diluting shares by 25%, but offsetting that with robust, profitable growth).

The $8.1 billion acquisition of FLIR Systems has already provided positive synergies in its first few weeks under Teledyne's management. FLIR accounted for over $300 million of TDY's digital imaging revenues (more than 25% of Teledyne's total revenue) and combined with the division's organic growth, this segment was able to grow by 144% from the same quarter last year. Digital imaging now makes up more than half of the company's total top line. FLIR's cutting-edge sensory technology will be a strong tailwind for Teledyne in the coming years.

Even when ignoring the additional FLIR revenue, Teledyne exhibited double-digit organic sales growth for the first time since Q4 of 2019. The tailwinds from the economic recovery and further synergies from FLIR's integration will continue to drive record quarterly results moving forward. TDY is up just 4% since this report, meaning that you didn't miss this tremendous post-earnings buying opportunity. With the recent upward revisions and upgrades from its limited covering analysts, I don't see the bullish energy behind this stock waning anytime soon. After a quarter like that, these shares are cheaper than ever (on a valuation basis).

The Business

Teledyne is a high-growth industrial business categorized under aerospace & defense equipment in the Zacks database, but the company is so much more than that. According to the company website, Teledyne's end markets include "aerospace and defense, factory automation, air & water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, medical imaging, and pharmaceutical research." Industries that are all at the forefront of this 4th Industrial Revolution, which is just commencing.

Final Thoughts

All 4 of the covering sell-side analysts on the ZRS platform are calling TDY a buy today, and I couldn't agree more. In addition, TDY's most recent analyst report was a particularly bullish call from a reputable firm of $540 a share (20% upside).

Every quarter it seems analysts are raising their price targets as Teledyne persistently exceeds analysts' estimates. Now that sensor/imaging powerhouse FLIR Systems is in the business mix, I expect to see accelerated success as the Roaring 20s take off.


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