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How TransDigm Group Expects to Avoid Moog's Earnings Woes

By Dan Caplinger - Feb 5, 2016 at 8:45AM

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There are a lot of differences in how the two aerospace-related companies do business.

Image source: TransDigm Group.

Recent strength in the aerospace industry over the past several years has brought prosperity to the sector, but not all stocks have benefited equally. TransDigm Group (TDG 0.94%) has taken maximum advantage of demand for its components, but peers like Moog (MOG.A 1.07%) (MOG.B 0.00%) haven't been as lucky. Coming into its fiscal first-quarter financial report on Tuesday, TransDigm investors believe that the company will be able to avoid the poor performance that Moog suffered during its most recent quarter. Let's take an early look at the latest from TransDigm Group and how it can outperform its industry peers.

Stats on TransDigm Group

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$737.92 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

Can TransDigm earnings climb higher this quarter?
In recent months, investors have gotten more optimistic about TransDigm Group earnings, boosting their first-quarter estimates by $0.05 per share and pushing up their full-year fiscal 2016 projections by 4%. The stock has held its own in a tough market, remaining unchanged since late October.

TransDigm's fiscal fourth-quarter report in November showed just how strong the company has been lately. Sales for the quarter climbed 26%, and adjusted net income gains of 28% produced earnings per share that were more than 10% higher than the consensus forecast among investors going into the report. TransDigm pointed to the success of its acquisition strategy as well as strategic initiatives with companies like United Technologies to collaborate on promising projects, and its earnings guidance for the coming fiscal year helped send the stock sharply higher on the news.

Since then, TransDigm Group has continued to make acquisitions. The company announced its purchase of Breeze-Eastern in November, paying $206 million in cash for the maker of highly engineered aircraft components. Breeze-Eastern's expertise ranges from helicopter rescue hoists and cargo winches to weapons-handling systems for military purposes, and that makes a good fit for TransDigm. Moreover, the number of proprietary products in Breeze-Eastern's portfolio creates a competitive advantage for TransDigm, avoiding more commoditized items on which it's harder to maintain margins in the long run.

Some investors have expressed some nervousness about the continued health of the aerospace industry in light of tepid guidance from companies like Boeing and Moog. In Moog's case, however, it's important to remember that the company has exposure to other, weaker areas of the economy, including the oil and gas exploration industry and the satellite and space and defense controls business. Moog did cite falling sales from commercial original-equipment and aftermarket purchasers, but TransDigm has a much more concentrated mix of business centered on aerospace and arguably has more of its attention dedicated to making the most of aerospace-related opportunities. As long as record orders for aircraft from Boeing and Airbus continue to pour in, then TransDigm should have the inside track to share in their success.

In the TransDigm Group earnings report, investors will want to see whether it can sustain its recent outperformance in generating strong growth in revenue and earnings. The current stock price implies that shareholders have high expectations for the company being able to sustain its past growth trajectory, and TransDigm will have to be careful if economic conditions start to deteriorate and affect the high-flying aerospace industry further. Nevertheless, if TransDigm can keep up its past track record of finding ways to outpace its competition, then the stock should have plenty of potential to produce longer-term growth for investors going forward.

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Stocks Mentioned

TransDigm Group Incorporated Stock Quote
TransDigm Group Incorporated
$541.69 (0.94%) $5.02
Moog Inc. Stock Quote
Moog Inc.
$80.24 (1.07%) $0.85
Moog Inc. Stock Quote
Moog Inc.
$79.80 (0.00%) $0.00

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

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