We upgrade our recommendation on Triumph Group Inc. (TGI) from Neutral to Outperform based on the recent Vought acquisition, which was highly accretive to first quarter fiscal 2011 earnings of $1.33 per share. Reported EPS surpassed the Zacks Consensus Estimate of $1.08.
Management expects the acquisition to add approximately $1.10 to the earnings estimate in fiscal 2011 and synergies are expected to be approximately $15.0 million within a year. Hence, Triumph has raised its guidance to approximately $6.00 per share, an approximately 17.0% increase from fiscal 2010. Besides, the Zacks Estimate is even higher at $6.14.
During the first quarter, Triumph completed the acquisition of Vought Aircraft Industries Inc. from private equity firm The Carlyle Group for $1.44 billion. Triumph paid $525 million in cash and offered 7.5 million shares to Carlyle for a 31% stake in Triumph.
Triumph issued senior notes to fund the acquisition. The acquired business operates as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division.
Moreover, the company’s focus on growing its core businesses along with its strict cost control strategy will help it to profit in the long run. Triumph’s organic growth also remained strong with the addition of products and services, the expansion of operating capacity and marketing of a complete portfolio of capabilities. The company follows a strict cost control program and achieved an operating margin of 12.4% in the first quarter of fiscal 2010, which may help it pull through the difficult period.
The stock retains its short-term Neutral rating, equivalent to a Zacks #3 Rank.
TRIUMPH GRP INC (TGI): Free Stock Analysis Report
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