Can TransDigm (TDG) Beat This Earnings Season? - Analyst Blog

TransDigm Group Inc. TDG is set to report its second-quarter 2014 results on May 6 before the opening bell. The company delivered a positive surprise of 25.78% in the last quarter. Further, the company had delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 35.6%. Let's consider some important issues that may affect the upcoming results.

Growth Factors in the Past Quarter

TransDigm is favorably positioned in the aerospace market. The company has been benefiting from its strategic acquisitions, a diversified revenue base and strong cash flow.

About 90% of its revenues are generated from proprietary products and the company is the sole provider of three fourths of the products sold. These products include customized systems on chip, diverse products for computer and gaming peripherals, secure ASICs as well as Trusted Platform Module, among others.

The company's aftermarket business has been stable even amid economic downturns, as it accounted for about 54% of the revenues in the last quarter and a higher share of earnings before interest, taxes, depreciation and amortization (EBITDA).

Recently on Mar 6, 2014, TransDigm acquired Elektro-Metall Export GmbH (EME GmbH) for $47.4 million. This acquisition is expected to further strengthen the company's presence in the aerospace electromechanical actuators, electrical and electromechanical components and assemblies primarily for commercial aircrafts, helicopters and other specialty applications segments.    

The company's strong free cash flow and well-planned capital structure reflects its ability and commitment to enhance shareholders' value.

Earnings Whispers?

Our proven model does not conclusively show that TransDigm is likely to beat estimates this quarter. This is because a stock needs to have both positive Earnings ESP and Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below:

Zacks ESP: The Earnings ESP for TransDigm is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.62 per share.

Zacks Rank:TransDigm carries a Zacks Rank #2 (Buy), which when combined with a 0.00% ESP makes surprise prediction difficult.

Other Stocks to Consider

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

Kraton Performance Polymers Inc. KRA, with an Earnings ESP of +3.51% and a Zacks Rank #1 (Strong Buy).

Chesapeake Utilities Corp. CPK, Earnings ESP of +0.63% and a Zacks Rank #2.

Level 3 Communications, Inc. LVLT with an Earnings ESP of +6.25% and a Zacks Rank #2.