Transdigm Group: 3 Different Insiders Have Sold Shares This Month

Apr.22.14 | About: TransDigm Group (TDG)

Summary

Three insiders sold Transdigm Group stock within one month.

The stock was not purchased by any insiders in the month of intensive selling.

All three of these insiders decreased their holdings by more than 10%.

Transdigm Group Incorporated (NYSE:TDG) designs, produces, and supplies engineered aerospace components for commercial and military aircraft customers in the United States.

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Insider selling during the last 30 days

Here is a table of Transdigm Group's insider activity during the last 30 days.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Raymond Laubenthal COO April 8-15 18,155 Yes 72,269 shares + 6,486 options 18.7%
Robert Henderson EVP April 15 2,420 Yes 0 shares 100%
Gregory Rufus CFO April 14 12,500 Yes 5,000 shares 71.4%
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There have been 33,075 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Transdigm Group's insider activity by calendar month.

Month Insider selling / shares Insider buying / shares
April 2014 33,075 0
March 2014 33,155 0
February 2014 7,950 0
January 2014 4,450 0
December 2013 0 0
November 2013 0 0
October 2013 0 0
September 2013 18,000 0
August 2013 14,490 3,000
July 2013 15,099 0
June 2013 48,308 0
May 2013 22,909 0
April 2013 7,894 0
March 2013 7,894 0
February 2013 222,894 180,230
January 2013 7,894 0
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There have been 444,012 shares sold, and there have been 183,230 shares purchased by insiders since January 2013.

Financials

Transdigm Group reported the fiscal 2014 first-quarter, which ended December 28, financial results on February 4 with the following highlights:

Revenue $529.3 million
Net income $86.1 million
Cash $410.9 million
Debt $5.7 billion
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The three insiders sold their shares after these results.

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(Source: Earnings presentation)

Outlook

Transdigm Group's fiscal 2014 guidance is as follows:

Revenue $2,283-$2,343 million
Net income $375-$393 million
EPS $6.24-$6.54
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(Source: Earnings presentation)

Competition

Transdigm Group's competitors include Honeywell International (NYSE:HON) and United Technologies (NYSE:UTX). Here is a table comparing these companies.

Company TDG HON UTX
Market Cap: 9.55B 72.91B 108.52B
Employees: 6,100 131,000 212,400
Qtrly Rev Growth (yoy): 0.23 0.04 0.02
Revenue: 2.02B 39.41B 62.63B
Gross Margin: 0.55 0.28 0.28
EBITDA: 895.06M 6.54B 11.13B
Operating Margin: 0.40 0.14 0.15
Net Income: 177.49M 3.98B 5.69B
EPS: 3.19 4.99 6.25
P/E: 56.81 18.77 19.09
PEG (5 yr expected): 1.78 1.62 1.57
P/S: 4.64 1.85 1.73
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Transdigm Group has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider activities this year.

Company Insider buying / shares Insider selling / shares
HON 0 141,603
UTX 0 146,095
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Only Transdigm Group has seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Transdigm Group, and there have not been any insiders buying Transdigm Group during the last 30 days. All three of these insiders decreased their holdings by more than 10%. Transdigm Group has an insider ownership of 0.28%.

Before going short Transdigm Group, I would like to get a bearish confirmation from the Point & Figure chart. The three main reasons for the proposed short entry are a relatively high P/S ratio, high P/E ratio, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.