TransDigm Group Incorporated (NYSE:TDG) missed earnings with its latest full-year results, disappointing overly-optimistic analysts. Results look to have been somewhat negative - revenue fell 2.7% short of analyst estimates at US$5.2b, and earnings of US$12.94 per share missed forecasts by 5.3%. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings consensus estimates to see what could be in store for next year.
Taking into account the latest results, the most recent consensus for TransDigm Group from 14 analysts is for revenues of US$6.26b in 2020, which is a meaningful 20% increase on its sales over the past 12 months. Earnings per share are expected to jump 43% to US$18.57. Before this earnings report, analysts had been forecasting revenues of US$6.39b and earnings per share (EPS) of US$19.48 in 2020. Analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the US$601 price target, showing that analysts don't think the changes have a meaningful impact on the stock's intrinsic value. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on TransDigm Group, with the most bullish analyst valuing it at US$645 and the most bearish at US$550 per share. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. Analysts are definitely expecting TransDigm Group's growth to accelerate, with the forecast 20% growth ranking favourably alongside historical growth of 14% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 5.3% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that TransDigm Group is expected to grow much faster than its market.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for TransDigm Group. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider market. The consensus price target held steady at US$601, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for TransDigm Group going out to 2023, and you can see them free on our platform here.
You can also view our analysis of TransDigm Group's balance sheet, and whether we think TransDigm Group is carrying too much debt, for free on our platform here.
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