We upgrade our recommendation on Triumph Group Inc. (TGI) to Outperform from Neutral based on the recently completed Vought acquisition.
During the first quarter of fiscal 2011, Triumph completed the acquisition of Vought Aircraft Industries Inc. from a private equity firm, The Carlyle Group, for $1.44 billion. Triumph paid $525 million in cash and offered 7.5 million shares to Carlyle for a 31% stake in Triumph. Triumph issued senior notes to fund the acquisition. The acquired business will operate as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division.
Triumph has been benefiting from acquisitions and internal growth. The Vought acquisition was highly accretive to earnings. Vought acquisitions added approximately 10 cents per share, excluding transaction and integration expenses, to the EPS of $1.33 reported in the first quarter. It is expected to be the same in the coming years with the synergies of approximately $15 million within a year.
The Zacks Consensus Estimate on Triumph’s earnings increased to $1.47 per share for the immediate quarter, while for fiscal 2011 and 2012 it increased to $5.82 and $7.15 per share, respectively. Thus, the company retains its short-term Zacks #2 Rank (Buy) rating.
Triumph Group has grown significantly over the past decade due to overall growth in the aerospace equipment and repair market, augmented by a string of more than 30 acquisitions. Triumph is all set to achieve $1.5 billion in annual sales and has been moving toward its goal through acquisitions. The company has witnessed its sales increase by more than $300 million in the last three years through various acquisitions. We expect to see continued merger and acquisition activity in order to facilitate reaching its annual sales goal.