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TransDigm (TDG) Down 0.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for TransDigm Group (TDG). Shares have lost about 0.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

TransDigm Q3 Earnings Beat Estimates, Raises FY19 View

TransDigm Group Incorporated reported third-quarter fiscal 2019 adjusted earnings of $4.95 per share, which surpassed the Zacks Consensus Estimate of $4.31 by 14.8%. Moreover, the bottom line increased 23.4% from $4.01 registered a year ago.
 
Barring one-time items, the company reported GAAP earnings of $2.57 per share compared with $3.91 in the year-ago quarter.
 
Sales
 
Net sales amounted to $1,658.3 million, reflecting year-over-year surge of 69.1% from $980.7 million in the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate of $1,581 million by 4.9%.

Meanwhile, organic sales grew 11.8%. Acquisition sales contributed $561.4 million, of which $545.3 million were from Esterline Technologies Corporation.
 
Financial Position
 
TransDigm ended the third quarter of fiscal 2019 with cash and cash equivalents of $2,716.8 million, up from $2,073 million as of Sep 30, 2018. At the end of the reported quarter, the company’s long-term debt summed $16.5 billion, up from $12.5 billion as of Sep 30, 2018.
 
Cash from operating activities amounted to $768.4 million as of Jun 29, 2019, compared with $690.9 million as of Jun 30, 2018.

Fiscal 2019 Outlook

TransDigm raised its 2019 financial guidance. Net sales are now anticipated to be $5,500-$5,550 million compared with the prior guidance of $5,395-5,485 million.

EBITDA is anticipated to be $2,425-$2,445 million compared with the prior guidance of $ 2,325-$2,365 million.

Adjusted earnings per share are currently expected to be $17.93-$18.25 compared with $16.47-$17.15 guided earlier.

Acquisition-related transaction and integration costs of $230 million and GAAP and cash effective tax rate of 24-25% with an adjusted tax rate of 26.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, TransDigm has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. It comes with little surprise TransDigm has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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