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TransDigm (TDG) Up 1.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for TransDigm Group (TDG). Shares have added about 1.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TransDigm due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TransDigm Q1 Earnings Beat Estimates, FY19 View Up

TransDigm Group reported first-quarter fiscal 2019 adjusted earnings of $3.85 per share, which surpassed the Zacks Consensus Estimate of $3.35 by 14.9%. However, the bottom line declined 31% from $5.58 registered a year ago.

Barring one-time items, the company reported GAAP earnings of $3.05 per share compared with $4.65 in the year-ago quarter. The year-over-year bottom-line growth was driven by increase in net sales and improvements in operating margin resulting from continued productivity efforts.

Sales

Net sales amounted to $993.3 million, reflecting year-over-year growth of 17.1% from $848 million in the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate of $947.5 million by 4.8%. Meanwhile, organic sales grew 11.6%.

Decent sales growth in all major markets contributed to the company’s top-line performance in the quarter under review.

Acquisitions

TransDigm frequently acquires proprietary aerospace businesses with significant aftermarket content, which fortifies the company’s foothold in its core market and are in line with its operating strategies. Evidently, on Oct 9, 2018, TransDigm agreed to buy Esterline Technologies Corporation for $4 billion, with the transaction expected to be completed by March or April of 2019.

We expect TransDigm’s acquisition spree to boost its product range with the proprietary products that enjoy strong position on high use of platforms, robust aftermarket content and an excellent reputation.

Financial Position

TransDigm ended the first quarter of fiscal 2019 with cash and cash equivalents of $2,337.3 million, up from $2,073 million as of Dec 29, 2018. At the end of the reported quarter, the company’s long-term debt summed $12.5 billion, which came in line with the debt figure of fiscal 2018-end.

Cash from operating activities amounted to $329.9 million as of Dec 29, 2018, compared with $292.8 million as of Dec 30, 2017.

Fiscal 2019 Outlook

Transdigm raised its 2019 financial guidance. Net sales are now anticipated in the range of $4,145-$4,235 million compared with the prior guidance of $4,125-4,215 million.

Net income from continuing operations are now projected in the range of $855-$893 million compared with $843-$881 million projected earlier.

Adjusted earnings per share are currently expected to be $16.42-$17.10 compared with $15.92-$16.60 guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, TransDigm has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TransDigm has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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