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TransDigm (TDG) Closes Acquisition of Young & Franklin


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Aircraft components maker, TransDigm Group Incorporated (TDG - Analyst Report) closed the acquisition of Young & Franklin Inc. and its subsidiaries, including Tactair Fluid Controls Inc. The deal will expand its footprint in the market of highly engineered, proprietary products with significant aftermarket content.

The Liverpool, NY-based Young & Franklin makes highly engineered valves and actuators, and almost all its products are proprietary. About 70% of its revenues come from the aerospace industry, while the industrial gas turbine market account for the remaining part.

Its key platforms include Embraer's E2, Phenom 300 and Legacy 450/500 programs, Lockheed C130J, Mitsubishi MRJ, Bombardier's Challenger and Global programs, Bell UH1; and diverse GE, Solar and other industrial turbine applications.

The acquired business will add to TransDigm’s revenues to the extent of about $75 million, for the fiscal year ending Dec 2016. Of this, aftermarket revenues will make up about 70% of the total. 

Young & Franklin and Tactair are established manufacturers of proprietary products, with robust aftermarket content. Their innovative products will enable TransDigm to expand its offerings on a range of platforms.

TRANSDIGM GROUP Price and Consensus

TransDigm has been actively working toward strengthening and boosting its position in the highly-engineered proprietary aerospace components’ niche markets. For this, the company has been eyeing proprietary aerospace businesses with strong aftermarket scope. In May, TransDigm wrapped up the purchase of ILC Holdings Inc. – the parent company of defense firm Data Device Corporation – for $1 billion. Data Device boasts a solid presence across key military aircraft platforms. It has also been enjoying a growing presence in the commercial aircraft market.

Also, early in the year, TransDigm acquired aircraft and weapons lifting and pulling systems maker, Breeze-Eastern. Such accretive acquisitions reinforce this aircraft component maker’s foothold in the aerospace industry and bode well for the company’s long-term growth and profitability.

The company has seen a number of quarters of disconnected growth trends, but we believe that TransDigm is on a solid growth track again. Improvement in the commercial aftermarket along with significant uptick in defense bookings, augur well for its improvement in the coming quarters. In addition, the aircraft business is taking off globally and TransDigm is well placed to bank on this growth.

TransDigm presently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the aerospace and defense equipment industry are CAE Inc. (CAE - Snapshot Report) , Kratos Defense & Security Solutions, Inc. (KTOS - Snapshot Report) and CPI Aerostructures Inc. (CVU - Snapshot Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Defense equipment provider CAE has a robust earnings beat history, having surpassed estimates thrice over the four trailing quarters, with an average positive surprise of 10.6%.

However, Kratos has a choppy earnings surprise history, having beaten estimates only twice over the trailing four quarters, for an average beat of 21.8%. Similarly, CPI Aerostructures has lagged estimates twice in the trailing four quarters.

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