Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Triumph Group Are Up Today

By Lou Whiteman – Updated Sep 18, 2020 at 11:35AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could the company be in the crosshairs of a larger aerospace supplier?

What happened

Shares of Triumph Group (TGI 0.25%) surged 13% higher on Friday after the aerospace supplier was mentioned as a potential takeover target. After years of underperformance, the company is slowly getting its act together, but investors need to be careful about getting too excited right now.

So what

Triumph is a collection of aerospace component businesses that had fallen on hard times prior to the coronavirus pandemic, with its shares losing about 70% of their value from midyear 2013 to the end of 2019 due to profitability issues. The company appointed Daniel J. Crowley as CEO in 2016 with a mandate to simplify operations and improve profitability, and Triumph in the years since has made steady progress selling underperforming businesses.

A plane receiving maintenance in a hanger.

Image source: Getty Images.

The pandemic has complicated the turnaround, with airlines trimming flights and cutting back new plane purchases. That has been a blow to Triumph's business making parts for new Boeing (BA 2.01%) aircraft and selling spare parts to airlines.

But with many of the troubled businesses now no longer a part of Triumph, some in the industry believe the company could be a target for a larger supplier. The shares are up on Friday following an article on the website Dealreporter that four sector advisors believe that with Triumph now out of the low-margin aerostructures business, it could be a takeover target.

An eventual sale has always seemed the most likely outcome of Crowley's tenure, so talk of a deal is no surprise, although it's always hard to predict the timing of an acquisition.

Now what

Whispers about a potential deal have been circulating for weeks, and Triumph shares are up more than 50% since Sept. 10. There might be something to the talk, but investors need to be cautious here.

Even if the rumors of potential interest are true, there is no guarantee they will lead to a transaction. Buying stocks based on merger rumors is speculating, not investing, and is best avoided.

Triumph is inexpensive, trading at just 0.16 times sales even after the stock's surge. But there's good reason for that discount: It was a troubled company going through an extensive turnaround even before COVID-19 hit, and its core commercial aerospace business is going to need time to recover from the pandemic.

My advice is to ignore the deal talk, and focus on better-positioned companies if you are interested in investing in a commercial aerospace recovery. Triumph on its own is heading in the right direction, but it is going to take a long time to get to its destination.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Triumph Group Stock Quote
Triumph Group
$11.84 (0.25%) $0.03
Boeing Stock Quote
$178.36 (2.01%) $3.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.