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Transdigm Group (TDG) Q4 Earnings: Is a Beat in the Cards?

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Transdigm Group Incorporated (TDG - Free Report) is set to report fourth-quarter fiscal 2018 results on Nov 6, before market open.

In the last reported quarter, the company witnessed a negative earnings surprise of 1.23%. However, it surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive earnings surprise of 0.05%.

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 fourth 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 +0.05%. 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 #2, which along with a positive Earnings ESP indicates an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, 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. With rapid increase in global trade activity significantly driving air passenger growth and freight traffic, the momentum is expected to bolster the company’s sales in fiscal fourth quarter.

In line with this, on the fiscal third-quarter earnings call, Transdigm Group increased its commercial aftermarket revenue growth expectations for fiscal 2018. We may expect the upcoming quarterly results to very well reflect these increased top line traits.

Moreover, the company follows a disciplined acquisition strategy, which is likely to boost revenues. To this end, in July 2018, Transdigm Group acquired Skandia — a leading provider of highly engineered seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. In the quarter to be reported, we expect this buyout to be revenue accretive for Transdigm Group. In line with this, the Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $1.03 billion, mirroring an annual improvement of 11.9%.

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. This, in turn, should boost the company’s earnings. Also, favorable impacts from the latest U.S. tax reforms are anticipated to aid the company’s bottom-line performance. Considering these factors, we may expect fourth-quarter fiscal 2018 results to duly reflect improved earnings for the company. The Zacks Consensus Estimate for earnings stands at $4.27 per share, reflecting an annual improvement of 22.7%.

Recent Defense Release

Embraer SA (ERJ - Free Report) incurred third-quarter 2018 adjusted loss of 16 cents per American Depository share (ADS), while the Zacks Consensus Estimate for earnings was pegged at 6 cents. Revenues came in at $1,151.7 million, missing the Zacks Consensus Estimate of $1,378 million by 16.4%.

Textron Inc. (TXT - Free Report) reported third-quarter 2018 adjusted earnings from continuing operations of 61 cents per share, which fell short of the Zacks Consensus Estimate of 76 cents by 19.7%.

Lockheed Martin Corp. (LMT - Free Report) delivered third-quarter 2018 earnings of $5.14 per share, which outpaced the Zacks Consensus Estimate of $4.32 by 19%. The bottom line also improved 54.8% from the year-ago quarter’s figure of $3.32.

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