Why Is TransDigm (TDG) Down 7.8% Since Last Earnings Report?

A month has gone by since the last earnings report for TransDigm Group (TDG). Shares have lost about 7.8% 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 catalysts.

TransDigm Q1 Earnings Beat Estimates, Sales Up Y/Y

TransDigm Group reported first-quarter fiscal 2020 adjusted earnings of $4.93 per share, which surpassed the Zacks Consensus Estimate of $4.56 by 8.1%. Moreover, the bottom line improved 28.1% from the prior-year quarter figure of $3.85.

Including one-time items, the company reported GAAP earnings of 83 cents per share compared with $3.05 in the year-ago quarter. The year-over-year bottom-line decline can be attributed to payments made in the quarter under review.

Sales

Net sales amounted to $1,465 million, reflecting year-over-year growth of 47.5% from the prior-year quarter. The top line also outpaced the Zacks Consensus Estimate of $1,458 million by 0.5%. Meanwhile, organic sales improved 8.7%.

Acquisition sales from the Esterline takeover contributed $385 million to total sales.

Financial Position

TransDigm ended first-quarter fiscal 2020 with cash and cash equivalents of $4,194 million, up from $1,467 million as of Sep 30, 2019.

At the end of the reported quarter, the company’s long-term debt summed $17.95 billion, up from $16.47 billion as of Sep 30, 2019.

Cash from operating activities amounted to $433 million as of Dec 28, 2019, compared with $330 million as of Dec 29, 2018.

Fiscal 2020 Outlook

TransDigm trimmed part of its fiscal 2020 financial guidance. Net sales are still anticipated in the range of $6,175-$6,325 million. The Zacks Consensus Estimate for the same is pegged at $6,280 million, which lies above the mid-point of the company’s guided range.

EBITDA is also reiterated in the range of $2,775-$2,875 million. Adjusted earnings per share are still expected in the range of $19.8-$21.2.The Zacks Consensus Estimate for the same is pegged at $20.83, which lies above the mid-point of the company’s guided range.

However, the company has slashed GAAP earnings from the prior range of $16.30-$17.79 to $14.20-$15.60.

Net income from continuing operations is still anticipated between $1,000 million and $1,080 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted -5.73% due to these changes.

VGM Scores

Currently, TransDigm has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 trending upward for the stock, and the magnitude of this revision 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.