On Wednesday, Triumph Group (TGI 2.23%) shares plunged following the aerospace company's quarterly earnings report. Analysts weighed in overnight, and as a result the stock is down another 17% on Thursday afternoon.
Wednesday's earnings report provided a clear indication Triumph is still a work in progress. The company reported per-share earnings and revenue figures that came in short of expectations, and it forecast full-year numbers that were well below the consensus estimates.
Wall Street's reaction was not positive. Baird analyst Peter Arment kept his outperform rating on the shares, but lowered his target price to $26 from $36. The analyst said that although he remains constructive on Triumph's long-term potential as divestitures continue and the company is able to pay down its debt, the weaker-than-expected fiscal 2023 outlook for free cash flow is a reminder that the turnaround will not come quick.
Cowen analyst Cai von Rumohr, who has a market perform rating on Triumph, cut his target to $18 from $23.25. He warned that Triumph's fiscal 2025 targets appear "aggressive" and that the company's "anemic" free cash flow guide is "an area of concern."
Triumph has spent the past few years trying to deconstruct its money-losing aerospace structures business, which has been an albatross weighing on results. The bull case is that as divestitures are completed, the remaining businesses should be able to generate stronger performance numbers that could make Triumph an attractive takeover candidate.
There's some merit to the argument, and it does seem likely that sometime in the years to come a streamlined Triumph could make an attractive bolt-on for a larger aerospace manufacturer. But Triumph still has more than $1.5 billion in long-term debt clouding its outlook.
The company has made steady progress paying that debt down from $1.9 billion on March 31, but factoring in that debt along with its market capitalization, Triumph has an enterprise value of about 12 times earnings before interest, taxes, depreciation, and amortization. That's within range of larger, healthier potential acquirers like Spirit AeroSystems and Howmet Aerospace, and with Triumph already doing so much cost-cutting on its own, there are limits to how much a buyer can expect in terms of synergies.
Shares of Triumph are now down nearly 30% for the week, and they are approaching a level where the shares look like good value. But there is no quick and easy road to recovery for the company, and that appears to be enough to keep buyers on the sideline for a second straight day.