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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.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Raymond LaubenthalCOOApril 8-1518,155Yes72,269 shares + 6,486 options18.7%
Robert HendersonEVPApril 152,420Yes0 shares100%
Gregory RufusCFOApril 1412,500Yes5,000 shares71.4%

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.

MonthInsider selling / sharesInsider buying / shares
April 201433,0750
March 201433,1550
February 20147,9500
January 20144,4500
December 201300
November 201300
October 201300
September 201318,0000
August 201314,4903,000
July 201315,0990
June 201348,3080
May 201322,9090
April 20137,8940
March 20137,8940
February 2013222,894180,230
January 20137,8940

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

The three insiders sold their shares after these results.

(click to enlarge)

(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

(click to enlarge)

(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.

CompanyTDGHONUTX
Market Cap:9.55B72.91B108.52B
Employees:6,100131,000212,400
Qtrly Rev Growth (yoy):0.230.040.02
Revenue:2.02B39.41B62.63B
Gross Margin:0.550.280.28
EBITDA:895.06M6.54B11.13B
Operating Margin:0.400.140.15
Net Income:177.49M3.98B5.69B
EPS:3.194.996.25
P/E:56.8118.7719.09
PEG (5 yr expected):1.781.621.57
P/S:4.641.851.73

Transdigm Group has the highest P/S ratio among these three companies.

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

CompanyInsider buying / sharesInsider selling / shares
HON0141,603
UTX0146,095

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.

Source: Transdigm Group: 3 Different Insiders Have Sold Shares This Month