TransDigm's Special Dividend Is A Sweet Way To Start The New Year

TransDigm Group Incorporated (NYSE: TDG) announced that it was considering a special dividend in the range of $1.1-$1.5 billion, and plans to finance this by increasing its existing term loan facility and cash on its balance sheet. Analyst Amy Allen of Wolfe Research expects the company to issue a dividend of $24 per share.

Special Dividend

Allen, who has a Peer Perform rating on TransDigm, said that the range announced by the company translates to a dividend of roughly $20-$27 per share, which compares with the previously issued special dividend of $25 per share in FQ3 of 2014.

TransDigm would be funding the special dividend by increasing its existing term loan facility by an additional $650 million, as well as using available cash on its balance sheet. Allen believes the company would likely make the payout in November. She estimated a dividend of $24 per share, totaling ~$1.35 billion.

Guidance Updated

TransDigm also updated its guidance for FY16 net sales to be at or slightly below the low-end of its previous guidance range, while also projecting EBITDA to be at or modestly above the midpoint of the prior range. The low-end of the net sales guidance is $3.17 billion and the midpoint of the EBIDTA guidance is at $1.49 billion.

“We believe further weakness in commercial OE (namely bizjet, freighter, and helo markets) is dragging down top-line performance, and we’re modeling F4Q16 organic sales to decline 2% y/y (vs. flat y/y previously),” the analyst wrote.

Allen further noted that TransDigm’s announcement suggested that the acquisition pipeline is less promising and market conditions are more challenging than was previous anticipated.

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