We recently maintained a Neutral recommendation on TransDigm Group Inc. (TDG).
Based in Cleveland, Ohio, TransDigm Group Inc. is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. The company’s business is well diversified due to the broad range of products it offers to its customers.
TransDigm Group has large, renowned customers in the aerospace/defense sector. These include: (1) distributors of aerospace components; (2) worldwide commercial airlines, including national and regional airlines; (3) large commercial transport and regional and business aircraft OEMs; (4) various armed forces of the United States and friendly foreign governments; (5) defense OEMs; (6) system suppliers; and (7) various other industrial customers.
Recently, the company came out with its fourth-quarter 2011 earnings per share from continuing operations of $1.20, outpacing the Zacks Consensus Estimate by $0.04 and prior-year earnings of $0.96. For fiscal 2011, earnings per share from continuing operations came in at $2.80, below the Zacks Consensus Estimate of $3.02, above prior-year earnings of 2.52 cents.
Net sales were $343.0 million, a rise of 53.7% year over year. Organically, sales during the quarter increased by approximately 13.7%, driven by improved commercial aftermarket and OEM markets and increase in defense sales. Sales during the quarter were also aided by acquisitions of Semco Instruments, McKechnie Aerospace and Talley Actuation.
For fiscal 2011, net sales were $1.21 billion, up 45.7% year over year. Besides, about 50% of sales growth was derived from recent acquisitions and strong organic revenue growth in both the commercial OEM and aftermarket aerospace markets.
By fiscal 2012, the company expects to achieve revenue growth in Commercial OEM market in the mid-teen percentage range, about 10% in commercial after market and decline slightly in the Defense market. Fiscal 2012 will witness considerable uncertainty regarding the overall economy and also regarding the United States Defense Budget.
TransDigm Group’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. These items are, in turn, affected by general economic conditions. Further, the military and defense market is significantly dependent upon government budget trends, particularly the DOD budget.
In addition to normal business risks, its supply of products to the United States Government is subject to unique risks largely beyond its control. Major competitors of the company are Goodrich Corp. (GR), Honeywell International Inc. (HON) and United Technologies Corp. (UTX).
We expect the company to perform in line with the market and hence maintained a Neutral recommendation.
