TransDigm Group Inc. (TDG) is slated to report first quarter fiscal 2015 results on Jan 27.
Last quarter, the company posted a positive surprise of 8.25%. Also, TransDigm has a positive average surprise of 15.20% in the last four quarters.
Let's see how things are shaping up for this announcement.
Factors to Consider
TransDigm 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% in Fiscal 2014) 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.
However, TransDigm has been suffering from 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, dependency on the number of flight hours that its customers’ planes spend aloft, whereabouts of the worldwide aircraft fleet and customers’ profitability also remains a concern for the company.
Earnings Whispers?
Our proven model does not conclusively show that TransDigm will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.84. Hence, the difference is 0.00%.
Zacks Rank: TransDigm’s Zacks Rank #3 when combined with 0.00% Earnings ESP makes surprise prediction difficult.
Notably, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Century Aluminum Co. (CENX) has an Earnings ESP of +7.81% with a Zacks Rank #1.
Arch Capital Group Ltd. (ACGL) has an Earnings ESP of +1.92% with a Zacks Rank #1.
Horsehead Holding Corp. (ZINC) has an Earnings ESP of +8.33% with a Zacks Rank #3.
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