We downgrade our recommendation on Triumph Group Inc. (TGI) from Outperform to Neutral based on the belief that the current stock price already reflects the synergy benefits from the Vought acquisition. Further, stiff competition and low barriers to entry in the OEM markets including the present slow market movement poses immense risk.
During the first quarter of fiscal 2011, the Vought acquisition was highly accretive to earnings and the reported EPS of $1.33 surpassed the Zacks Consensus Estimate of $1.08. In fiscal 2011, the acquisition is expected to add approximately $1.10 to the earnings estimate, which seems to have been already incorporated in the current stock price and hence it is not expected to Outperform further. The stock currently maintains its short term “Hold” rating, equivalent to a Zacks #3 Rank.
We also recommend investors to hold the stock for the longer term because we believe that Triumph’s focus on growing its core businesses along with its strict cost control strategy will help it to gain in the long run.
Triumph Group has grown significantly over the past decade due to overall growth in the aerospace equipment and repair market, augmented by a string of more than 30 acquisitions.
The company has witnessed its sales increase by more than $300 million in the last three years through various acquisitions. We expect to see the company continuing its merger and acquisition activity in order to reach its $1.5 billion annual sales goal.
For fiscal 2011, Triumph expects an EPS of approximately $6.0 (including the acquisition effect). Management expects the new business to be immediately accretive to earnings and add approximately $25 million to revenues in fiscal 2011 with total synergy benefits of approximately $15 million within a year.
The Zacks Earnings Estimates for fiscal years 2011 and 2012 are expected at $6.06 per share and $7.21 per share, respectively, representing 18.4% and 40.8% upside from fiscal 2010 level.
TRIUMPH GRP INC (TGI): Free Stock Analysis Report
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