TransDigm Group Incorporated TDG wrapped up the acquisition of the Kirkhill engineered elastomers business from Esterline Corporation ESL for a consideration of $50 million in cash, recently. The purchase price is subject to normal and customary adjustments.
The Kirkhill business makes specialty seals and other rubber components meant primarily for aerospace and defense markets. Based at Brea, CA, the business is a dominant supplier of highly-engineered aerospace elastomers and generates annual revenues of roughly $90 million. About 50% of its sales are derived from commercial transport airframes and the rest primarily from defense aerospace applications.
Importantly, the products are mainly proprietary, sole source with significant aftermarket content. They have a broad range of applications in most major commercial transport and military platforms. Latest commercial platforms like Boeing's 787, 777X and 737MAX; Airbus's A320NEO and A350; as well as the military JSF also use its products.
TransDigm’s long-term growth strategy rests on five pillars, one of which is expanding its proprietary aerospace businesses. TransDigm frequently acquires proprietary aerospace businesses with significant aftermarket content, which boosts its footprint in its core market and is in line with its operating strategies. In fact, 90% of the company’s net sales are generated by proprietary engineered products and the Kirkhill acquisition will add to the same.
Over the last three years, the company has acquired about $3 billion of proprietary aerospace businesses. In the past few months, the company has been integrating the recent product-line acquisitions of Preece, Cablecraft and North Hills into AdelWiggins, AeroControlex and Data Device Corporation respectively.
TransDigm’s shares have appreciated 11.8% over the past six months, outperforming the industry’s rally of 10.8%.
The company’s buyouts of proprietary aerospace businesses with significant aftermarket content, has helped it bolster footprint in core market and grab a higher market share. During the first quarter of 2018, the company’s acquired businesses generated $32 million of additional sales. The company anticipates these acquisitions to help shift focus to higher growth segments, consequently becoming more competitive.
TransDigm’s earnings have trumped estimates in three of the trailing four quarters. This Zacks Rank #2 (Buy) company is expected to sustain the momentum driven by complementary acquisitions, positive industry trends, solid operational execution and steadily growing end markets.
Other Stocks to Consider
A few other top-ranked stocks in the industry include Spirit Aerosystems Holdings, Inc. SPR and Teledyne Technologies Incorporated TDY. While Spirit Aerosystems sports a Zacks Rank #1 (Strong Buy), Teledyne carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Spirit Aerosystems surpassed earnings estimates twice in the trailing four quarters, resulting in an average surprise of 9.8%.
Teledyne Technologies has a positive average earnings surprise of 35.4%, beating estimates strongly all through.
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Transdigm Group Incorporated (TDG): Free Stock Analysis Report
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