TransDigm Group Inc. (TDG) has been benefitting from the strong performance of its aftermarket business, which deals in providing components to a large and growing installed base of aircraft. The company, which generates a large part of its revenues (around 54%) from the aftermarket sales, expects the uptrend to continue in the future given the existing economic conditions. In addition, TransDigm is gaining from the continuous improvement in the commercial original equipment manufacturing (OEM) business.
Moreover, TransDigm is focused on acquiring proprietary aerospace businesses, which has scope for strong after-market business. The company’s strategic acquisitions in fiscal 2013 drove the earnings in the fourth quarter of fiscal 2014 by enhancing strength in the commercial aftermarket and commercial aerospace.
Additionally, TransDigm’s diversified revenue base reduces its dependence on any particular product, platform or market channel and has been a significant factor in maintaining the financial performance. Also, the company’s strong free cash flow and well planned capital structure creates appropriate shareholder value.
However, TransDigm is currently affected by the escalating debt burden. As of Sep 30, 2014, the company’s long-term debt increased to $7.2 billion, from $5.7 billion as of Sep 30 2013. Moreover, TransDigm’s business is sensitive to the number of flight hours that its customers’ planes spend aloft, the size and age of the worldwide aircraft fleet and customers’ profitability.
Moreover, TransDigm is highly dependent on revenue generation from its top ten customers, which accounted for approximately 43% of its net sales in fiscal year 2014. A reduced purchase by any of these customers due to the economic downturn, decreased production or strike, can have an adverse effect on net sales, gross margin and net income.
To gain deeper insight into TransDigm, you can refer to our updated research report, which was issued on Jan 12, 2014.
Over the last 30 days, the Zacks Consensus Estimate for 2015 and 2016 earnings per share remained stable at $7.80 and $8.67, respectively. Consequently, the stock currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Better-ranked stocks in the aerospace/defense equipment industry include Astronics Corp. (ATRO), Curtiss-Wright Corp. (CW) and Rockwell Collins Inc. (COL). All three stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment