UPDATE: Bank of America Downgrades Triumph Group as Significant Operating Risks Remain

In a report published Wednesday, Bank of America analyst Ronald J. Epstein downgraded the rating on Triumph Group TGI from Buy to Neutral, and lowered the price target from $83.00 to $73.00. In the report, Bank of America noted, “We are downgrading TGI to Neutral from Buy. In our view, there remain significant operating risks facing the company as it grapples with 747-8 execution, C-17 termination, and weakness in military aftermarket. Margin expansion amidst a more difficult top-line outlook may be challenging. We estimate that management's pro forma EPS guidance of $5.75 in FY15 and $6.75 in FY16 factors in earnings growth per share from operations of $0.27 and $0.50, respectively. See Table 1 for our EPS bridge. Considering that the current guidance already assumes a 1% margin for the 747-8 program, which is TGI's largest program by backlog, a further program rate cut by Boeing could mean additional unfavorable cumulative catch-up charges...Additionally, in order to meet guidance, TGI must be able to offset the production ramp-down of the V-22 Osprey and UH-60 Blackhawk, which are the ninth and tenth largest programs by backlog, respectively. We are lowering our FY14 GAAP EPS to $4.10 from $4.55 as we account for lower operating profit margin of 14.2% from 15.0%, higher refinancing charges, and 747-8 charges. In the outyears, we are lowering our expected operating margin forecast and we now expect TGI to exit FY18 at operating margins of 14.0% vs. our previous guidance of 16.1%. This lowers our FY15 EPS to $5.50 from $6.55, our FY16 EPS to $6.25 from $7.10, our FY17 EPS to $6.35 from $7.40, and our FY18 EPS to $6.40 from $7.50.” Triumph Group closed on Tuesday at $66.02.