Textron Inc. (TXT), TransDigm Group Incorporated (TDG), Triumph Group Inc (TGI): 1 Aerospace Company to Buy, 2 to Hold

The company is expected to focus on the following items in its earnings call:

Capital deployment / the M&A pipeline.

Arkwin synergies.

Commercial aftermarket trends.

Impact of sequestration on defense order activity.

OE ramp.

Acquisition integration.

Triumph Group Inc (NYSE:TGI) investors are not triumphant

Triumph Group Inc (NYSE:TGI) was recently downgraded to neutral by Goldman Sachs Group Inc (NYSE:GS) since the stock has displayed a 30% gain since January. The Street continues to favor Triumph Group Inc (NYSE:TGI)’s exposure to aerospace OE and next-generation aircraft. However, the margins for these segments have improved substantially, which means less of an upside remains ahead.

As far as the outlook is concerned, Triumph Group Inc (NYSE:TGI) is expected to raise its 2014 EPS outlook. The estimate is 5% above the mid-point of the company’s guidance range. Triumph Group Inc (NYSE:TGI)’s guidance is conservative, particularly with respect to its operating margin assumption. For the earnings call, following issues will be thoroughly analyzed:

The commercial OE cycle.

The 787 ramp

The 747-8 program (the company is a supplier to both of The Boeing Company (NYSE:BA)’s aircraft.)

The impact from sequestration

Goodrich Pump & Engine Control Systems (GPECS) integration; GPECs was acquired by Triumph Group Inc (NYSE:TGI)from United Technologies Corporation (NYSE:UTX) in January.

Cash generation improvement

Final word

In the article, we noted that two drivers of aerospace revenue are on a rise (i.e. aerospace OE and aftermarket) while one is on a decline (defense due to budget cuts) and one is expected to rise in the foreseeable future (business jet sales). As far as the “Ts” of the Aerospace are concerned, TransDigm Group Incorporated (NYSE:TDG) is recommended as a buy given its historically strong performance in the universe. Textron Inc. (NYSE:TXT) and Triumph Group Inc (NYSE:TGI) are recommended as “hold” on the basis of sluggish growth in the business-jet market and upside already priced in the stock, respectively.

The article 1 Aerospace Company to Buy, 2 to Hold originally appeared on Fool.com and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends TransDigm Group (NYSE:TDG). The Motley Fool owns shares of Textron. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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