Is TransDigm (TDG) Poised for Another Earnings Beat in Q1?

TransDigm Group Incorporated TDG is scheduled to report first-quarter fiscal 2018 results before the opening bell on Feb 6. In the quarter to be reported, the company is expected to post solid growth in the Life Sciences & Diagnostics business.

The company has an excellent earnings surprise history, having beaten estimates each time over the trailing four quarters, for an average positive surprise of 3%. Last quarter, the company reported earnings of $3.48 per share, reflecting a beat of 3%.

Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that TransDigm has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: TransDigm has an Earnings ESP of +0.47%, as the Most Accurate estimate of $2.77 is pegged higher than the Zacks Consensus Estimate of $2.76. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving the Better-Than-Expected Earnings?

TransDigm has been riding on robust momentum, driven by complementary acquisitions, positive industry trends, solid operational execution and steadily growing end markets. The company anticipates its operating profit and bottom-line growth to benefit from the same in the to-be reported quarter as well.

TransDigm designs, produces and supplies highly engineered proprietary aerospace components and certain systems with a significant aftermarket presence. For instance, about 90% of the company’s sales are generated by proprietary engineered products, that is, products for which the company owns the intellectual property. We believe this would enhance the revenue generation capacity through all phases of the aerospace cycle, consequently supplementing its financials.

TransDigm’s thriving after-market business continues to expand as a majority of aircrafts bought during the financial crisis is beginning to age, and requires more frequent and comprehensive servicing. We believe stable after-markets, which have historically produced higher gross margins, will continue to drive its financial performance for the upcoming quarters.

Transdigm Group Incorporated Price, Consensus and EPS Surprise

Transdigm Group Incorporated Price, Consensus and EPS Surprise | Transdigm Group Incorporated Quote

Of late, the company’s Defense business has also been performing better than expectations, adding to its strength. Moreover, a diversified revenue base reduces the company’s dependence on any particular product, platform or market channel, and will continue to play a significant role in maintaining financial performance in the near future.

However, TransDigm has been witnessing negative trends in some end markets, of late, like weaker defense after-market orders, and soft business jet, helicopter and freighter revenues. This is likely to strain its top-line growth in the fiscal first-quarter results.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

GlaxoSmithKline PLC GSK, with an Earnings ESP of +10.35% and a Zacks Rank of 3, is expected to release quarterly numbers around Feb 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

NGL ENERGY PARTNERS LP NGL, with an Earnings ESP of +78.95% and a Zacks Rank of 3, is slated to report results on Feb 6.

General Motors Company GM has an Earnings ESP of +2.13% and a Zacks Rank #3. The company is likely to release earnings around Feb 6.

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