TransDigm Group Incorporated TDG managed to impress investors with its recent earnings streak as the company’s bottom line trumped estimates thrice in the trailing four quarters. We believe that the company’s strong operational efficiency, its solid portfolio of products as well as complementary acquisitions will continue to be key growth drivers, going forward.
The company’s stock has had an impressive run on the bourse in the past three months, driven by some impressive growth boosters. The stock has rallied 17.4%, ahead of the industry’s growth of 2.5%. We believe that the company’s encouraging traction across markets and a robust product portfolio will propel growth.
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Read on to find out the key catalysts for the company right now.
Factors at Play
TransDigm’s excellent business operation model, which implements value-based operating strategies guided by three value driver concepts, has helped the company generate sufficient organic and inorganic growth, expanding the operating margin over the past few quarters.
Moreover, through its well-diversified business, the company offers a broad range of products to its customers. Notably, it designs, produces and supplies highly engineered proprietary aerospace components and certain systems, commanding a significant aftermarket presence. For instance, 90% of TransDigm’s net sales is generated from the proprietary engineered products the intellectual property right of which, the company owns and enjoys to enhance its competitive edge. Also, the company is the sole supplier of more than three-fourth of products that it sells. This in turn, cements its assertive foothold in the market quite meaningfully.
Further, we believe that stable aftermarkets, which have historically produced higher gross margins, will continue to leverage the company’s financial performance in the upcoming quarters. Of late, this Zacks Rank #2 (Buy) player’s defense business has also been steady enough to consistently add to its strength.
This apart, the company’s acquisition strategies are directed toward buying proprietary aerospace businesses with substantial aftermarket content. This tactical move has in fact, already helped TransDigm strengthen its footprint in the core markets and grab a higher market share. In this regard, the company during fiscal 2017, had announced the buyout of three add-on aerospace product lines for a total consideration of roughly $100 million.
We are also highly optimistic about TransDigm’s consolidations of Kirkhill and Extant in March 2018. Both companies are primarily proprietary sole source aerospace businesses with sizeable aftermarket content. Such strategic transactions are expected to be accretive to the acquirer’s product portfolio and contribute to its long-term growth.
Other Stocks to Consider
Other top-ranked stocks in the same space include AeroVironment, Inc. AVAV, CPI Aerostructures, Inc. CVU and KLX Inc. KLXI. While AeroVironment sports a Zacks Rank #1 (Strong Buy), CPI Aerostructures and KLX carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
AeroVironment surpassed estimates in three of the trailing four quarters with an average positive earnings surprise of 147.4%.
CPI Aerostructures exceeded estimates thrice in the last four quarters with an average beat of 20.1%.
KLX outpaced estimates thrice in the preceding four quarters with an average earnings surprise of 10.6%.
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