Another day, another headline making earnings report. Today, shares of TransDigm Group Inc. (TDG) are up over 10% after the aerospace supplier trounced expectations for the second quarter. With TDG soaring to all-time highs, this has my readers asking me: How high can TDG go? Let’s find out.
At first glance, it’s easy to see why these results have investors celebrating. Last quarter, TransDigm’s net sales jumped 28.7% year-on-year to $796.8 million. Over the same period, adjusted earnings rose 35.5% to $2.86 per share. The consensus estimate was for $2.58 EPS on $777.1 million in revenue, so TransDigm posted a 10.9% earnings surprise and a 2.5% sales surprise.
Last quarter was a busy time for TransDigm. It repurchased $137 million of its shares, and it completed its acquisition of Breeze-Eastern for $206 million. And TransDigm expects FY 2016 to be similarly eventful. It expects to earn between $11.04 and $11.28 per share on between $3.15 billion and $3.18 billion in revenue. This translates to between 22.5% and 25.2% annual earnings growth and between 16.2% and 17.3% annual sales growth.
So, will TDG keep reaching new heights? In my opinion, yes. The stock trades at a reasonable valuation for it industry, and if you plug it into Portfolio Grader, you can see that TDG has remained in buy territory for the past year running.
Once the latest results have been loaded up into my stock screening tool, I expect its Fundamental Grade to firm up. And, with all of the excitement that has been drummed up by this earnings report, the stock’s Quantitative Grade will likely improve as well.
At this time, I consider TDG a B-rated Buy, and I see further upside potential for this promising aerospace and defense play.