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Transdigm Group (TGI) Q3 Earnings: Is a Beat in the Offing?

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Transdigm Group Incorporated (TDG - Free Report) is set to report third-quarter fiscal 2018 results on Aug 7, before the market opens.

In the last reported quarter, the company delivered a positive earnings surprise of 3.55%. Also, it surpassed the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average beat being 1.64%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Transdigm Group is likely to beat estimates in the fiscal third quarter. That is because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen.

Earnings ESP: Transdigm Group has an Earnings ESP of +1.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3, which along with a positive Earnings ESP indicates a positive surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into earnings announcements.

Factors at Play

After-market sales, which constitute for more than 50% of Transdigm Group’s total revenues, have been consistently boosting the company’s top-line performance. The momentum is expected to continue in the fiscal third quarter as well. Since both Kirkhill and Extant have significant presence in aerospace aftermarket, management at Transdigm Group expects these recently completed buyouts to be revenue accretive.

For fiscal 2018, the company raised the midpoint of its revenue guidance by $95 million, primarily on account of these buyouts. Considering this, we may expect Transdigm Group’s revenues in the soon-to-be-reported quarter to reflect a part of this revenue accretion. Meanwhile, robust air passenger traffic growth witnessed worldwide should continue driving the company’s top line. In line with this, the Zacks Consensus Estimate for second-quarter revenues is pegged at $1 billion, mirroring an annual improvement of 10.3%.

On the fiscal second-quarter earnings call, Transdigm Group announced that it expects to generate improved EBITDA in the second half of 2018 buoyed by better operating performance. As a result, the company raised its fiscal 2018 earnings per share guidance. We may expect the upcoming results to duly reflect improved EBITDA figures for Transdigm Group, which in turn should boost its quarterly bottom line. The Zacks Consensus Estimate for second-quarter earnings stands at $4.06 per share, reflecting an annual improvement of 23%.

Recent Defense Release

General Dynamics Corporation (GD - Free Report) reported second-quarter 2018 adjusted earnings of $2.82 per share, which surpassed the Zacks Consensus Estimate of $2.49 by 13.3%.

Hexcel Corporation (HXL - Free Report) reported second-quarter 2018 adjusted earnings of 75 cents per share, which missed the Zacks Consensus Estimate of 76 cents by 1.3%.

Huntington Ingalls Industries, Inc.’s (HII - Free Report) second-quarter 2018 earnings of $5.40 per share exceeded the Zacks Consensus Estimate of $4.21 by 28.3%.

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