Triumph Group (NYSE: NYSE:TGI) received a downgrade from an analyst at Jefferies from Buy to Hold. The firm also reduced its price target for the aerospace company's shares to $14.00, a significant decrease from the previous target of $20.00. The downgrade was prompted by concerns over earnings and cash flow projections.
The analyst's decision was influenced by a pattern of downward adjustments in earnings per share and the expectation of a slower ramp-up in EBITDA and free cash flow (FCF) following the first quarter of fiscal year 2025, which ends in June. The revised outlook includes lower EBITDA margins, now expected to be around 14%, compared to the company's guidance of approximately 15%. This adjustment is attributed to challenges at the Interiors segment due to the MAX aircraft and a slower than anticipated realization of price actions.
Additionally, the analyst noted that Triumph Group's use of $113 million in free cash flow in the first quarter, with a guidance of negative $70-90 million in the second quarter, suggests a need for a significant increase in the second half of the year to meet the full-year 2025 guidance of a positive $210 million. This figure contrasts with the historical average of $54 million in free cash flow during the second halves of fiscal years 2021-2024.
Triumph Group reported a solid start to fiscal year 2025, with a 7% increase in year-over-year sales. This growth is primarily attributed to strong aftermarket demand and the company's strategic shift towards systems and intellectual property-based aftermarket services.
Triumph Group also retired an additional $120 million of debt, leading to credit rating upgrades from Moody's (NYSE:MCO) and Standard & Poor's. Despite a recent cybersecurity incident, the company maintains that it will not significantly impact financial results.
Recent developments include Triumph Group's expectation of Original Equipment Manufacturer (OEM) build rates to increase in the next 18 months. The company also anticipates net sales of approximately $1.2 billion for the full year.
Triumph Group's backlog has increased by 25% for Boeing (NYSE:BA) and Airbus commercial transport since December 2020, and the company has secured new contracts, including those from GE and in the electric vehicle market.
InvestingPro Insights
As Triumph Group (NYSE:TGI) navigates through its financial challenges, real-time data from InvestingPro provides a deeper understanding of the company's current market position. With a market capitalization of $1.04 billion, the aerospace company is grappling with a negative P/E ratio of -32.86, indicative of investor concerns about profitability. However, the company's revenue growth stands at a notable 15.72% over the last twelve months, pointing to a potential turnaround in its financial performance.
InvestingPro Tips suggest that while Triumph Group operates with a significant debt burden, analysts are optimistic about net income growth this year. This contrasts with the four analysts who have revised their earnings downwards for the upcoming period, reflecting mixed sentiment in the market. Notably, the company's stock has experienced considerable volatility, with a sharp decline over the last week, but it has also delivered a high return over the last year at 63.2%.
For investors looking for more detailed analysis and additional InvestingPro Tips, there are 10 more tips available on Triumph Group, which can be found at https://www.investing.com/pro/TGI. These insights could prove valuable for understanding the full scope of the company's financial health and future prospects.
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