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TransDigm (TDG) Down 6.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for TransDigm Group (TDG). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.

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

TransDigm's Q3 Earnings Beat Estimates, Sales Up Y/Y

TransDigm Group reported third-quarter fiscal 2021 adjusted earnings of $3.33 per share, which surpassed the Zacks Consensus Estimate of $2.99 by 11.4%. The bottom line also improved a solid 116% from $1.54 reported a year ago.

Barring one-time items, the company reported GAAP earnings of $5.43 per share against loss of 9 cents incurred in the year-ago quarter.

This year-over-year improvement can be attributed to increase in net sales described, lower effective tax rate, the net gain on sale recognized as a result of the divestitures completed during the fiscal third quarter and lower COVID-19 restructuring costs.

Sales

Net sales amounted to $1,218 million, increasing 19.2% from $1,022 million in the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate of $1,201 million by 1.4%.

Operating Results

Gross profit for the quarter surged 33.4% to $655 million from $491 million in the comparable quarter a year ago.

Consequently, income from operations increased 56.3% year over year to $447 million.

Financial Position

TransDigm ended the third quarter of fiscal 2021 with cash and cash equivalents of $4,529 million, down from $4,717 million as of Sep 30, 2020.

At the end of the reported quarter, the company’s long-term debt was $19.38 billion, in line with the long-term debt level as of Sep 30, 2020.

Cash from operating activities amounted to $624 million as of Jul 3, 2021, compared with $991 million as of Jun 27, 2020.

Fiscal 2021 Outlook

Given the considerable uncertainty around the extent and duration of business disruptions related to the COVID-19 pandemic, and how those will continue to impact operations, TransDigm did not provide fiscal 2021 guidance this time.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, TransDigm has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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