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TransDigm Buys Takata Corp.'s Aerospace Business for $90M

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Premium engineered aircraft components provider, TransDigm Group IncorporatedTDG recently acquired SCHROTH Safety Products GmbH and aviation & defense assets & liabilities of Takata Corporation for a total of $90 million in cash.

This move reflects TransDigm's strategy to acquire proprietary aerospace businesses with significant aftermarket content, in a bid to fortify its core business. Given that SCHROTH has a growing aftermarket presence on attractive high use platforms, TransDigm believes it will contribute significantly toward its core business. In particular, the company purchased SCHROTH Safety Products, a wholly owned subsidiary of Takata Corp and Takata Protection Systems Inc.

SCHROTH Buyout

The acquired units will operate as a single business - SCHROTH - and will focus on designing and manufacturing proprietary, highly engineered, advanced safety systems for aviation, racing, and military ground vehicles. SCHROTH Safety Products comprises the lion's share of revenues (about 90%) in this deal. In this transaction, most of the revenues will come from proprietary products, with aftermarket content accounting for approximately 40% of the revenues, and aerospace & defense representing 80% of the revenues.

SCHROTH Safety Products has earned a solid reputation for providing specialty technical restraints, passenger belts, structural monument airbags and cockpit security components for leading airline companies, including Airbus and Boeing. Moreover, with total revenue of approximately $43 million for fiscal 2017, SCHROTH offers restraint systems for business jet, general aviation, helicopter, military and racing markets.

TransDigm has significantly reinforced its aftermarket footprint with strategic acquisitions. During fiscal 2016, this Zacks Rank #2 (Buy) company closed the buyout of Young & Franklin Inc. and its subsidiaries; ILC Holdings Inc.; Breeze-Eastern and Tactair Fluid Controls. These acquired firms have considerable aftermarket content, which has boosted TransDigm's highly engineered, proprietary products business, as well as military and commercial aircraft portfolio.

Macro Woes Hurt Prospects

Despite strategic acquisitions, an excellent business operation model and solid aftermarket presence, TransDigm has had a bearish run on the bourse for the past six months. Shares declined 10.9% over the same time frame in stark contrast to the Zacks classified Aerospace/Defense Equipment industry's rally of 8.9%. Poor defense aftermarket orders and soft business jet, and helicopter revenues have been making matters worse for the company.

Also, escalating interest expenses and broader macroeconomic sluggishness are thwarting the company's growth. The company has some concerns about the commercial transport industry in the coming times as well, which can pose as a major headwind.

Key Picks

Other favorably placed stocks in the broader sector include Huntington Ingalls Industries, Inc. HII , L3 Technologies, Inc. LLL and Northrop Teledyne Technologies Incorporated TDY . While Huntington Ingalls flaunts a Zacks Rank #1 (Strong Buy), L3 Technologies and Northrop Teledyne carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Huntington Ingalls managed to beat estimates thrice over the trailing four quarters. It has a positive average earnings surprise of 19.9%.

L3 Technologies, Inc. has an excellent earnings surprise history, with an average beat of 15.0% for the trailing four quarters.

Teledyne Technologies has an average positive earnings surprise of 11.0% for the trailing four quarters, beating estimates all through.

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Transdigm Group Incorporated (TDG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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