TransDigm Group Inc Stock Downgraded (TDG)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- TransDigm Group (NYSE: TDG) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and feeble growth in the company's earnings per share.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 24.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 85.01% to $129.04 million when compared to the same quarter last year. In addition, TRANSDIGM GROUP INC has also vastly surpassed the industry average cash flow growth rate of -24.68%.
  • The gross profit margin for TRANSDIGM GROUP INC is rather high; currently it is at 55.02%. Regardless of TDG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.64% trails the industry average.
  • TRANSDIGM GROUP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TRANSDIGM GROUP INC reported lower earnings of $2.42 versus $5.97 in the prior year. This year, the market expects an improvement in earnings ($7.56 versus $2.42).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 78.9% when compared to the same quarter one year ago, falling from $76.66 million to $16.18 million.

TransDigm Group Incorporated, through its subsidiaries, designs, produces, and supplies engineered aerospace components for commercial and military aircraft customers in the United States. The company operates through three reporting segments: Power & Control, Airframe, and Non-aviation. TransDigm Group has a market cap of $9.27 billion and is part of the industrial goods sector and aerospace/defense industry. Shares are up 7.1% year to date as of the close of trading on Thursday.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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