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Here's Why Investing In TransDigm Group (TDG) Makes Sense
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Investors have been buoyed by TransDigm Group Incorporated’s (TDG - Free Report) recent winstreak, as TransDigm’s earnings have trumped estimates in the four trailing quarters. The company is anticipated to continue the momentum driven bycomplementary acquisitions, positive industry trends, solid operational execution and steadily growing end markets.
TransDigm’s performance has reflected well on its share price, exhibiting investor optimism. The company’s shares have appreciated 6.4% in the last three months, outperforming the industry’s average growth of 2%. We believe that the industry is witnessing favorable broader trends, which should have a positive impact on the company, in the quarters to come. Read on to find out the key drivers for the company right now.
Factors at Play
TransDigm’s long-term growth strategy rests on five pillars namely, expanding proprietary aerospace businesses; executing value-based operating strategy; decentralized organization structure; strategic acquisitions and a diligent capital allocation strategy. The company’s excellent business operation model, which implements value-based operating strategies guided by three value driver concepts, has helped it generate sufficient organic & inorganic growth in the past few quarters. It has also aided operating margin expansion.
TransDigm designs, produces and supplies highly engineered proprietary aerospace components and certain systems/subsystems with a significant aftermarket presence. 90% of the company’s net sales are generated by proprietary engineered products, for which the company owns the intellectual property. Moreover, its Defense business has also been performing better than expectations, consequently adding to the company’s strength. The diversified revenue base reduces the company’s dependence on any particular product, platform or market channel thus playing a significant role in maintaining financial performance.
The company’s frequent acquisitions of proprietary aerospace businesses with significant aftermarket content, has helped it bolster footprint in core market and grab a higher market share. During the fiscal fourth quarter, the acquired businesses of Tactair, Young & Franklin as well as the three product lines generated $26 million of additional sales. The company anticipates these acquisitions to help shift focus to higher growth segments, consequently becoming more competitive.
Despite the positives, TransDigm is currently affected by escalating debt burden and consequent higher interest expenses. Further, the company’s interest expenses have been trending upward for the last few quarters. In fact, it expects debt servicing costs to rise almost 24% year over year to around $600 million in fiscal 2017.
Further, the company has been suffering from prolonged weakness in some of its major end markets, which has thwarted growth momentum. Softening discretionary retrofits, interior retrofits and weakness in jet as well as helicopter markets have impacted the top line in recent times.
Considering growth drivers and the risks that the company faces, we have a Zacks Rank #3 (Hold) on TransDigm.
Stocks to Consider
Some better-ranked stocks from the same space include Teledyne Technologies Incorporated (TDY - Free Report) , Huntington Ingalls Industries, Inc. (HII - Free Report) and Rockwell Collins, Inc. . While Teledyne Technologies sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls Industries and Rockwell Collins carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Teledyne Technologies has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 37.2%.
Huntington Ingalls Industries has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 14.2%.
Rockwell Collins has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 2.6%.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Here's Why Investing In TransDigm Group (TDG) Makes Sense
Investors have been buoyed by TransDigm Group Incorporated’s (TDG - Free Report) recent winstreak, as TransDigm’s earnings have trumped estimates in the four trailing quarters. The company is anticipated to continue the momentum driven bycomplementary acquisitions, positive industry trends, solid operational execution and steadily growing end markets.
TransDigm’s performance has reflected well on its share price, exhibiting investor optimism. The company’s shares have appreciated 6.4% in the last three months, outperforming the industry’s average growth of 2%. We believe that the industry is witnessing favorable broader trends, which should have a positive impact on the company, in the quarters to come. Read on to find out the key drivers for the company right now.
Factors at Play
TransDigm’s long-term growth strategy rests on five pillars namely, expanding proprietary aerospace businesses; executing value-based operating strategy; decentralized organization structure; strategic acquisitions and a diligent capital allocation strategy. The company’s excellent business operation model, which implements value-based operating strategies guided by three value driver concepts, has helped it generate sufficient organic & inorganic growth in the past few quarters. It has also aided operating margin expansion.
TransDigm designs, produces and supplies highly engineered proprietary aerospace components and certain systems/subsystems with a significant aftermarket presence. 90% of the company’s net sales are generated by proprietary engineered products, for which the company owns the intellectual property. Moreover, its Defense business has also been performing better than expectations, consequently adding to the company’s strength. The diversified revenue base reduces the company’s dependence on any particular product, platform or market channel thus playing a significant role in maintaining financial performance.
The company’s frequent acquisitions of proprietary aerospace businesses with significant aftermarket content, has helped it bolster footprint in core market and grab a higher market share. During the fiscal fourth quarter, the acquired businesses of Tactair, Young & Franklin as well as the three product lines generated $26 million of additional sales. The company anticipates these acquisitions to help shift focus to higher growth segments, consequently becoming more competitive.
Despite the positives, TransDigm is currently affected by escalating debt burden and consequent higher interest expenses. Further, the company’s interest expenses have been trending upward for the last few quarters. In fact, it expects debt servicing costs to rise almost 24% year over year to around $600 million in fiscal 2017.
Further, the company has been suffering from prolonged weakness in some of its major end markets, which has thwarted growth momentum. Softening discretionary retrofits, interior retrofits and weakness in jet as well as helicopter markets have impacted the top line in recent times.
Considering growth drivers and the risks that the company faces, we have a Zacks Rank #3 (Hold) on TransDigm.
Stocks to Consider
Some better-ranked stocks from the same space include Teledyne Technologies Incorporated (TDY - Free Report) , Huntington Ingalls Industries, Inc. (HII - Free Report) and Rockwell Collins, Inc. . While Teledyne Technologies sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls Industries and Rockwell Collins carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Teledyne Technologies has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 37.2%.
Huntington Ingalls Industries has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 14.2%.
Rockwell Collins has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 2.6%.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>