TransDigm is Tuesday's IBD Stock Of The Day as the aerospace contractor gets an uplift from GE Aerospace's bullish Q1 earnings report. TDG stock has bounded off key support and is near possible entries.
GE Aerospace posted first-quarter earnings of 82 cents a share, 17 cents ahead of forecasts and triple the year-ago result. Revenue grew 11% to $16.1 billion, also well ahead of estimates.
Boeing Woes Fuel TransDigm
Both GE Aerospace and TransDigm derive the bulk of their profit from aftermarket sales, which are expected to be supported by Boeing production problems. That will keep older aircraft operating for longer.
In a presentation released with fiscal Q1 earnings on Feb. 8, TransDigm said that aftermarket sales accounted for just over 75% of earnings before interest, taxes, depreciation and amortization. Fiscal Q2 earnings are expected to be released around May 7, with no date yet announced.
TransDigm Group comprises about 50 companies that produce highly engineered components and systems for nearly all military and commercial aircraft. About 90% of sales are unique, proprietary products, TransDigm says. About 50% to 55% of sales come in the aftermarket.
On April 9, TD Cowen highlighted Boeing's problems while hiking its TDG stock price target to 1,300 from 1,250, keeping a buy rating. The firm cited healthy demand, pricing power and M&A opportunities. At the same time, TD Cowen upgraded GE Aerospace to buy from hold.
On Monday, KeyBanc analyst Michael Leshock raised his TDG price target by 105 to 1,325, keeping an overweight rating. Market research points to an outlook for tight aerospace and defense end markets, primarily the aftermarket, he said.
House approval of $95 billion in aid for Ukraine, Israel and Taiwan also may contribute to demand tailwinds.
TDG Stock
TransDigm rose 3.45% to 1,242.40in Tuesday stock market action, a record close. That followed Monday's 1.1% bounce, after TDG stock closed at its 50-day moving average on Friday.
Tuesday's continued move off the 50-day line and past the 21-day exponential average flashed an early entry opportunity. The previous move off the 50-day line came in early January and saw TDG climb about 25%.
TDG recently etched out a four-weeks-tight pattern, with weekly moves of no more than 1.5%, before slipping 2.7% last week. That offers a 1,246.22 buy point.
Arguably TransDigm stock is offering an aggressive entry now. TDG stock was added to SwingTrader on Tuesday.
The relative strength line is at a record high. That reflects TDG stock's long record of outperformance vs. the S&P 500. The RS line hitting a new high before the stock does is especially bullish.
GE jumped 8.3% to a 15-year high, with the daily gain among the top three for the S&P 500 as of midafternoon. The positive news also helped lift FTAI Aviation 2.5%, Heico 2.7% and Howmet 2.9%.
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