This aircraft product maker’s shares are trading at a heavy discount due to an ongoing dispute with Bombardier. Our contributor feels this is an opportune time to buy at a discount. And so does R.W. Baird, who just upgraded Triumph Group stock to ‘outperform.’
Triumph Group (TGI)
From Cabot Benjamin Graham Value Investor
Triumph Group (TGI; Max Buy Price 30.01) makes a wide variety of structural products for military and commercial aircraft, and designs, manufactures and retrofits a variety of aircraft components. The company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, business and military aircraft and aircraft parts suppliers, as well as commercial and regional airlines and air cargo carriers. Triumph was founded in 1993 and currently resides in Berwyn, Pennsylvania.
Sales and earnings have suffered during the past 18 months because production at Boeing, Airbus and Gulfstream for older aircraft slowed. New management is implementing a plan to downsize the company’s manufacturing operations, improve efficiency and cut costs. Several aircraft makers will begin work on new aircraft in 2017, which will provide a boost to sales for Triumph. The company also won a new contract from Raytheon.
A news article in the May 9 Wichita Eagle newspaper revealed that Triumph filed an amended credit agreement that “provides the company’s Vought Aircraft Division … with the option, if necessary, to commence voluntary insolvency proceedings within 90 days.” A Triumph spokesperson explained that a voluntary insolvency proceeding is just one of several possibilities under consideration and no decisions have been made.
Triumph is in a battle with Canadian business jet maker Bombardier over uncompensated cost overruns. The threatened insolvency of one of Triumph’s subsidiaries, Vought, could be a negotiating tactic to win a favorable settlement. The news sent TGI stock price down 11% during regular hours on May 10.
Sales will likely slip another 4% during the next 12 months because of Triumph’s ongoing downsizing. EPS will rise 5% to $4.50 spurred by management’s new plan to streamline operations throughout the company. A corporate income tax cut by the new Republican administration could propel earnings considerably higher. The company’s current tax rate is 30%.
TGI sells at only 5.2 times current EPS and 3.2 times cash flow, which is extremely low. Triumph will report first-quarter results on May 24. I expect TGI to advance 76% and reach my sell target of 42.76 within two years. Buy at 30.01 or below.
J. Royden Ward, Cabot Benjamin Graham Value Investor, www.cabotwealth.com, 978-745-5532, May 11, 2017