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Triumph Group Down to Strong Sell

Zacks Equity Research

On Oct 8, 2013, Zacks Investment Research downgraded Triumph Group, Inc. (TGI) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Triumph Group manufactures aircraft structures and is one of the suppliers for the aerospace giant The Boeing Co.'s (BA) 747-8 aircraft. The company expects to incur $68 million or 83 cents per share in pre-tax additional program costs this fiscal year ending March 2014 for slashed profits expected from its 747-8 program as Boeing has lowered its production for 747-8.

Of the estimated incremental costs, about $44.0 million, or 53 cents per share, would be accounted for in the company's second quarter fiscal 2014 results. About $11 million of the costs, or 14 cents a share, will be recorded in the third quarter and the balance $13 million, or 16 cents a share, will be included in the final quarter.

Also, with the recent partial U.S. government shutdown, Boeing is reportedly unable to deliver new planes as it requires the Federal Aviation Administration sanction.

Recently, Triumph Group completed the acquisition of General Donlee Canada Inc. Triumph acquired all of the issued and outstanding shares of General Donlee for CDN$5.50 per share in cash. Earlier in the year the company had acquired Primus Composites and the pump and engine control systems business of Goodrich Corp.

These back-to-back acquisitions have significantly affected the company’s liquidity. Exiting the fiscal first quarter 2014, Triumph had cash and cash equivalents of $18.5 million compared with $32.0 million at the end of the prior-year quarter. Long-term debt (including the current portion) was $1,413.8 million, up from $1,329.9 million in the fiscal fourth quarter of 2013. Cash from operations, before pension contributions, was $37.6 million in fiscal first quarter of 2014, down from $127.6 million in the year-ago period. Given the balance sheet position, the company would find it difficult to reap the benefits from these acquisitions.

Though the company has posted a positive earnings surprise of 7.76% in the last four quarters, it is expected to report a year-over-year decline of 30.57% for the quarter ending Sep 30, 2013. The company is expected to release its second quarter fiscal 2014 results on Oct 29, 2013. The Zacks Consensus Estimate for the quarter is $1.09 per share. The share price of the company has declined 14.2% over the last three months.

Other Stocks to Consider

Not all stocks are performing as badly as Triumph Group. Stocks worth considering include Zacks Ranked #1 (Strong Buy) B/E Aerospace Inc. (BEAV) and Elbit Systems Ltd. (ESLT).

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