Recent Pullback Creates A Buying Opportunity For Triumph Group

Jun.21.12 | About: Triumph Group, (TGI)

Triumph Group (NYSE:TGI) designs and constructs components and accessories for aircraft manufacturers. The stock has returned 20% on a 1-year basis, but plummeted 11% over the past 3 months primarily owing to overall equity market weakness. Trading at the mid-point of the 52-week range between $42.78 and $66.89, TGI has a market capitalization of $2.9B. At the current valuation, I believe the stock is poised for a rebound based on the following reasons:

  • Analysts expect top line to grow steadily at 7.2% and 6.7% over the current and next fiscal years, and EPS to rise by 5.6% and 6.2% over the same horizons. Taking the growth estimates into consideration, TGI trades at a 3-year expected PEG of 1.1x, suggesting a reasonable valuation relative to the growth prospects.
  • At $57.40 per share, TGI is valued at 10.3x the LTM EPS, which is at a substantial discount to the range between 14.5x and 16.7x that its industry peers are trading at. According to the chart below, the current P/E is very close to its 5-year low.

TGI ChartClick to enlarge

TGI data by YCharts

  • According to the chart below, TGI has experienced significant improvement on profitability over the past 5 years as reflected by the rising ROE and net margin trends. The firm has also generated steady free cash flows over the same period.

TGI ChartClick to enlarge

TGI data by YCharts

  • At a debt to total capitalization ratio of 36%, TGI's balance sheet remains solid with current ratio and LTM interest coverage ratio of 2.0x and 6.7x, respectively. The firm also generates a healthy FCF margin of 4% in the last fiscal year.
  • Analysts are very bullish on the stock. Of the 11 ratings, there are 4 strong buys, 6 buys, and 1 hold. The mean target price is $78.09, implying a 38% potential upside. UBS reiterated its buy rating for the stock in May and raised the target price to $74 from $70.
  • According to the EPS table below, the estimated EPS has multiple upward revisions over the past 90 days, reflecting analysts' growing confidence in the firm.

Click to enlarge

  • One insider just bought $55,483 in shares at an average cost of $55.48 in June.

Charts are sourced from YCharts, EPS table is sourced from Yahoo Finance, and financial data is sourced from company 10-Q, 10-K, press release, Yahoo Finance, YCharts, Wall Street Journal, Thomson One, Bloomberg and Morningstar.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TGI over the next 72 hours.