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TransDigm (TDG) Up 7.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for TransDigm Group (TDG - Free Report) . Shares have added about 7.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

TransDigm Q3 Earnings Beat Estimates, Sales Fall Y/Y

TransDigm Group reported third-quarter fiscal 2020 adjusted earnings of $1.54 per share, which surpassed the Zacks Consensus Estimate of 99 cents by 55.6%. However, the bottom line decreased 66.9% from $4.65 reported in the year-ago quarter.
 
Barring one-time items, the company reported GAAP loss of 9 cents per share against earnings of $2.27 in the year-ago quarter.

The year-over-year deterioration can be attributed to a decline in net sales, along with COVID-19 restructuring costs, higher interest expense and a higher tax rate due to discrete one-time tax charges being taken during the quarter.

Sales

Net sales amounted to $1,022 million, reflecting a decline of 32.8% from $1,521 million in the prior-year quarter. The reported figure however outpaced the Zacks Consensus Estimate of $1,007 million by 1.5%. Meanwhile, organic sales declined 9.6%.

Operating Results

The company incurred net loss of $5 million from continuing operations in the quarter against income of $128 million in the comparable quarter a year ago.

The effective tax rate was 113.5% compared with 30% in the comparable period in fiscal 2019. The deterioration was due to the unfavorable economic impact of the COVID-19 pandemic on the company's net interest deduction limitation and a discrete cumulative adjustment associated with excess tax benefits from share-based payments.

Financial Position

TransDigm ended the third quarter of fiscal 2020 with cash and cash equivalents of $4,549 million, up from $1,467 million as of Sep 30, 2019. At the end of the reported quarter, the company’s long-term debt was $19.41 billion, up from $16.47 billion as of Sep 30, 2019.

Cash from operating activities amounted to $991 million as of Jun 27, 2020 compared with $768 million as of Jun 29, 2019.

Fiscal 2020 Outlook

Given the considerable uncertainty around the extent and duration of business disruptions related to the COVID-19 pandemic and how it will impact operations, TransDigm kept its previously provided fiscal 2020 guidance suspended.

 

 


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 29.95% due to these changes.

VGM Scores

Currently, TransDigm has an average Growth Score of C, a grade with the same score on the momentum front. 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 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. 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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