Management commented on the gap for 2014 earnings during the conference call: “Fiscal ’14 has a large hole in it associated with the 767’s move from commercial to tanker freighter. This includes an almost 50% reduction in deliveries that will happen in Q2 through Q4. That reduction will not only create a loss of revenue and profit but also will impact our cost and factories where 767 have a substantial part of the work. The good news is that with the freighter and tanker orders, we believe this could be largely an anomaly for ’14 only.”
Standard and Poor’s continues to expect 2015 earnings to come in around $7.50 and Triumph Group Inc (NYSE:TGI) management maintained its longer term guidance for 2015 and 2016 with $8.25 expected for the latter year. If the earnings impairment only pertains to 2014 it is only an issue of one dollar per share, a good deal less than the market is discounting.
Given the unchanged longer-term guidance, the drop in the stock price appears to be an opportunity to buy shares on the cheap. The 10% reduction in the share price is discounting the fiscal 2014 earnings as a permanent reduction rather than a one-time factor and Eric Hugel, an analyst who covers Triumph for S&P, raised his twelve month target price to $90 even considering expected 2014 performance.
Lastly, it should be noted that CEO Jeffry Frisby has made substantial purchases of his own company’s stock at a price a good deal higher than what is presently available on the market. The CEO bought 14,737 shares on Apr. 26 for $79.80 at a market value of $1.18 million at the time. The stock is now trading nearly 10% lower. Being able to buy the stock for 10% less than the CEO did is in my view a very compelling opportunity. Alternatively, I would recommend selling a September $70 Put, which should fetch approximately $3.75 given the current bid/ask prices. In that case, you can either own Triumph Group Inc (NYSE:TGI) for $66.25 or be paid a 5.66% premium on at-risk capital over the next 140 days, an annualized return of 14.78% if the shares are not assigned.
The market can be volatile in the short-term; however, Triumph’s long-term prospects are still very bright. If you own Triumph I would continue to hold and if you don’t, it is a steal at the current price.
Brendan O’Boyle has no position in any stocks mentioned. The Motley Fool recommends Precision Castparts. The Motley Fool owns shares of Lockheed Martin.
The article The Coming Boom in Aerospace: Which Companies Are Poised to Profit? originally appeared on Fool.com.
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