We are maintaining our Neutral recommendation on
Triumph Group Inc.
We are optimistic on the recent International Air Transport
Association (IATA) traffic update for April 2012, which registered
a 6.1% year-over-year growth in commercial transport passenger.
Such a traffic pattern is expected to significantly accelerate
maintenance spending on aircrafts and ramp up the aftermarket
services growth for Triumph in the coming quarters.
However, the cargo market continues to show weakness, shrinking
4.2% in April, the weakest region being North America. Also, demand
for aftermarket parts and services, as well as freight services in
China remain hesitant. The cyclical commercial aerospace market
showed a pull back in Europe, followed by North America.
During the fourth quarter of 2012, Triumph's net sales inched up
3% year over year to $946.4 million, with organic growth reaching
3%. The results were attributable to improved execution and synergy
realization. Moreover, margin improvement backed by expense cutback
was impressive during the quarter. Management expects an increase
of 9% to 11% in earnings per share from continuing operations for
fiscal 2013 compared to fiscal 2012.
However, we are still concerned about the company's repair and
overhaul services, which are exposed to risks, including having
only a few large clients, interest rate changes and problems in
supply chain management. Moreover, demand for military and defense
products has shown a slowdown over the last few quarter on account
of squeezed government budgets.
Offsetting the above risks, Triumph witnessed strong demand for
the company's new age jet engines with fuel efficiency, reduced
noise level and exhaust emission capabilities. Stronger demand was
also noticed across business and general aviation aftermarket parts
and services. Leveraging such rising demand scenario, Triumph Group
is expected to boost sales in the coming quarter, thereby retaining
shareholder confidence on the stock.
The aerospace industry is highly competitive due to an adverse
situation of overcapacity. The company directly competes with peers
Lockheed Martin Corporation
Spirit Aero Systems Holdings Inc
). Moreover, higher energy and commodity costsprovoke a risk of
Triumph Group has a Zacks #2 Rank, which translates into a
short-term (1-3 months) Buy rating.
AAR CORP (AIR): Free Stock Analysis Report
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SPIRIT AEROSYS (SPR): Free Stock Analysis
TRIUMPH GRP INC (TGI): Free Stock Analysis
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