General Electric Company (GE), TransDigm Group Incorporated (TDG), Honeywell International Inc. (HON): Offloading This Division Could Be a Boon for This Aerospace Company

Page 1 of 2

Although the deal represents little more than a rounding error on General Electric Company (NYSE:GE)‘s massive balance sheet, the news that the conglomerate would sell its aviation actuation division to TransDigm Group Incorporated (NYSE:TDG) has piqued investors’ interest. General Electric Company (NYSE:GE) has a major stake in the aviation industry, but it appears that its management team found this particular division to be redundant or unnecessary. For TransDigm Group Incorporated (NYSE:TDG), it represents a solid pickup that could translate into revenue growth, stock-price appreciation and improved synergies.

General Electric Company (NYSE:GE)

Given the small size of this deal and the fact that it does not involve the creation of a standalone company, most market-watchers expect it to close within the next few months. Investors should operate under this assumption as well and prepare themselves to take advantage of an altered aviation landscape. First, a look at some of the industry’s key players is in order.

GE, TransDigm and Honeywell

As a diversified industrial conglomerate with footholds in dozens of global industries, General Electric Company (NYSE:GE) has more competitors than it can name. Aside from TransDigm Group Incorporated (NYSE:TDG), the company also competes with Honeywell International Inc. (NYSE:HON) in a number of key areas. Although many consumers probably know about Honeywell International Inc. (NYSE:HON) through its line of household appliances, the company is also heavily invested in the aviation business.

It should not come as a surprise that General Electric Company (NYSE:GE) is the largest of these three companies. It has a market capitalization of nearly $240 billion and saw gross 2012 revenues of around $145 billion. By comparison, Honeywell International Inc. (NYSE:HON) has a market cap of about $61 billion and 2012 revenues of just under $38 billion. TransDigm Group Incorporated (NYSE:TDG) is far behind with an $8.2 billion market cap and a $1.8 take in 2012. However, TransDigm is the most profitable of the three firms: Its 2012 profit margin of 17.6 percent is roughly double that of Honeywell International Inc. (NYSE:HON) and nearly 80 percent higher than that of GE.

Unfortunately, TransDigm’s profitability makes it an expensive stock to own. Its price-to-book ratio of nearly 12 is almost 300 percent higher than that of Honeywell International Inc. (NYSE:HON) and a whopping 600 percent higher than that of General Electric Company (NYSE:GE). The company also has about $5 in debt for every $1 in cash on its books. GE has a slightly lower ratio, and Honeywell’s debt pile is roughly the same size as its cash hoard.

How the Deal Is Structured

This deal is valued at roughly $150 million. While this represents a drop in the bucket for General Electric Company (NYSE:GE), it stands as a significant acquisition for TransDigm. It appears that TransDigm Group Incorporated (NYSE:TDG) will finance the deal with cash-on-hand and subsume the division into a new subsidiary that will operate out of New Jersey.

What the New Division Will Look Like

According to reports, the aviation actuation division will be branded as Whippany Actuation Systems and allowed to operate on a semi-autonomous basis from TransDigm Group Incorporated (NYSE:TDG)’s New Jersey office. During the first full year of operation, it is expected to claim revenues of about $80 million. The business will be fairly well diversified: Currently, the division earns about half of its revenues from commercial contract sales and half of its revenues from aftermarket sales.

Whippany Actuation Systems will make a variety of components for aircraft engines and other major aviation systems, including motors, actuators, mechanical transmitters, control subsystems and others. These are designed for use in several models of regional jets, Airbus-manufactured long-haul jets, and several different types of military aircraft and vehicles.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!