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Why Is TransDigm (TDG) Down 0.5% Since Last Earnings Report?

Zacks Equity Research
·4 min read

A month has gone by since the last earnings report for TransDigm Group (TDG). Shares have lost about 0.5% 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 drivers.

TransDigm Beats on Q2 Earnings, Ups '23 EPS View

TransDigm Groupreported fiscal second-quarter 2023 adjusted earnings of $5.98 per share, which beat the Zacks Consensus Estimate of $5.46 by 9.5%. The bottom line also improved a solid 54.9% from the prior-year quarter’s reported figure of $3.86.

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Barring one-time items, the company reported GAAP earnings of $5.32 per share compared with $3.38 in the year-ago period.

Sales

Net sales amounted to $1,592 million, up 20% from $1,327 million in the prior-year quarter. The reported figure also beat the Zacks Consensus Estimate of $1,498 million by 6.3%.

Operating Results

Gross profit for the quarter was $929 million, up 26.2% from the year-ago period’s $736 million.

Income from continuing operations increased 42.7% year over year to $533 million. This improvement was primarily due to a rise in net sales and a favorable sales mix.

Financial Position

Cash and cash equivalents as of Apr 1, 2023, were $3,418 million compared with $3,001 million as of Sep 30, 2022.

At the end of the fiscal second quarter, TDG’s long-term debt was $19.35 billion compared with $19.37 billion as of Sep 30, 2022.

Cash from operating activities increased to $507 million from $366 million at the end of fiscal second-quarter 2022.

2023 Guidance

TransDigm raised its guidance for fiscal 2023. The company now expects sales in the range of $6,410-$6,500 million compared with the prior projection of $6,070-$6,240 million. The Zacks Consensus Estimate for the company’s full-year sales is pegged at $6.18 billion, lower than the company’s guided range.

TDG also currently expects adjusted earnings of $23.31-$24.19 per share for fiscal 2023, compared with the prior guidance of $21.47-$22.87 per share. The Zacks Consensus Estimate for full-year earnings is pegged at $22.36 per share, lower than the company’s guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, TransDigm has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TransDigm has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

TransDigm belongs to the Zacks Aerospace - Defense Equipment industry. Another stock from the same industry, Raytheon Technologies (RTX), has gained 2.4% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Raytheon Technologies reported revenues of $17.21 billion in the last reported quarter, representing a year-over-year change of +9.5%. EPS of $1.22 for the same period compares with $1.15 a year ago.

For the current quarter, Raytheon Technologies is expected to post earnings of $1.19 per share, indicating a change of +2.6% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Raytheon Technologies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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Zacks Investment Research