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Why Is TransDigm (TDG) Down 2.9% Since Last Earnings Report?

A month has gone by since the last earnings report for TransDigm Group (TDG). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TransDigm due for a breakout? 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 Q2 Earnings Beat Estimates, FY19 View Up

TransDigm Group reported second-quarter fiscal 2019 adjusted earnings of $4.21 per share, which surpassed the Zacks Consensus Estimate of $3.86 by 9%. Moreover, the bottom line increased 11.1 % from $3.79 registered a year ago.

Barring one-time items, the company reported GAAP earnings of $3.60 per share compared with $3.63 in the year-ago quarter.

Sales

Net sales amounted to $1195.9 million, reflecting year-over-year growth of 28.2% from $933.1 million in the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate of $1,140 million by 4.9%. Meanwhile, organic sales grew 11%.

TransDigm frequently acquires proprietary aerospace businesses with significant aftermarket content, which fortifies its foothold in the core market and is in line with its operating strategies. Evidently, on Mar 14, 2019, the company completed the acquisition of Esterline Technologies Corporation, a supplier of products to the global aerospace and defense industry.

We expect TransDigm’s acquisition spree to boost its product range with proprietary products that enjoy strong position on high use of platforms, robust aftermarket content and an excellent reputation.

Financial Position

TransDigm ended the second quarter of fiscal 2019 with cash and cash equivalents of $2,441.3 million, up from $2,073 million as of Sep 30, 2018. At the end of the reported quarter, the company’s long-term debt summed $16.51 billion, up from $12.5 billion as of Sep 30, 2018.

Cash from operating activities amounted to $453 million as of Mar 30, 2019, compared with $453.7 million as of Mar 31, 2018.

Fiscal 2019 Outlook

TransDigm raised its 2019 financial guidance. Net sales are now anticipated to be $5,395-$5,485 million compared with the prior guidance of $4,145-4,235 million.

EBITDA is anticipated to be $2,325-$2,365 million compared with the prior guidance of $ 2,065-$2,115 million.

Adjusted earnings per share are currently expected to be $16.47-$17.15 compared with $16.42-$17.10 guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, TransDigm has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward 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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