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Here's Why TransDigm Group Gained 15% in January

By Lou Whiteman – Updated Apr 22, 2019 at 5:00PM

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The company pre-announced strong quarterly results and hinted that an important deal is near completion.

What happened

Shares of TransDigm Group (TDG 0.08%) gained 15% in January, according to data provided by S&P Global Market Intelligence, gaining a huge boost toward the end of the month after management telegraphed that quarterly results would come in well ahead of consensus.

So what

Aerospace component supplier TransDigm said in a Jan. 28 regulatory filing that it expects fiscal-first-quarter revenue of $998 million and EBITDA of $487 million, besting consensus estimates by more than 5%. TransDigm does not officially release quarterly results until Feb. 5, but it disclosed the updated financials in an 8K filing made in conjunction with a debt offering to fund its upcoming acquisition of Esterline Technologies (ESL).

Two planes in flight seen from below.

Image source: Getty Images.

It's hard to say exactly what is driving that overperformance until TransDigm releases full results, but based on the strong quarters put in by Honeywell and United Technologies, it is a safe bet that continued strength in the commercial aerospace market is a big contributor.

The timing of the filing also suggests that TransDigm is ahead of schedule in completing its Esterline purchase. The company has expected the deal to close in the first half of this year but is well on its way to securing the needed regulatory approvals and could be moving up its timetable.

Check out the latest TransDigm earnings call transcript.

Now what

Investors have become accustomed to strong quarters from TransDigm, the best-in-class aerospace supplier, but the strong performance despite difficult comparisons to last year is ample reason for shareholders to get excited.

TransDigm has been a prolific acquirer throughout its history, with a long track record of extracting costs and boosting earnings per share at target companies, so a faster Esterline close offers the opportunity for TransDigm to get more out of that business in calendar 2019 and exceed full-year expectations.

Investors who have held TransDigm for the past decade have enjoyed a 978.5% gain. It's hard to imagine the company repeating that sort of performance over the next 10 years, but TransDigm's pre-announcement is an indication that the company is still firing on all cylinders.

Lou Whiteman owns shares of TransDigm Group. The Motley Fool owns shares of and recommends TransDigm Group. The Motley Fool has a disclosure policy.

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