Triumph Group Cut to Underperform at BofA as ‘Production Uncertainty Looms’ Via Investing.com

Investing.com — Bank of America double-downgraded Triumph Group (NYSE: ) to Underperform from Buy, citing concerns about the company’s reliance on uncertain production rates from Boeing (NYSE: ) and Airbus.

While TGI has made strides in transforming its business into a leaner and more focused portfolio, BofA analysts expressed concern that these positive changes are being overshadowed by unpredictable aircraft production schedules.

“On the 737, the Facilities segment is producing at a rate of 13/month (well below the rate needed for margin expansion),” BofA said.

Meanwhile, the Composites and Cabin Components divisions are said to be producing a healthier 30 planes per month, but analysts see further downside risks due to uneven rates.

The bank adds that a prolonged strike at Boeing could lead to reduced inventories, exacerbating existing challenges.

In addition to production uncertainty, BofA expressed concern about Triumph’s free cash flow (FCF) generation.

The company is ramping up production, and while Boeing and Airbus are currently accepting inventory, Bofa says potential production cuts could exacerbate cash burn through destocking.

The bank says other headwinds to FCF include the announcement of the V-22 program, OEM delays, inflation and lack of supply chain.

Although Triumph’s aftermarket business is showing strength due to extended aircraft life and 787 undercarriage overhauls, it accounts for only 20% of total sales.

BofA believes this is insufficient to offset near-term headwinds, especially as the company’s margins remain flat despite strong top-line growth.

As Triumph continues its portfolio reshaping and balance sheet restructuring, BofA expects the board to consider strategic alternatives, including potential mergers and acquisitions.

However, analysts believe any significant progress will occur once the company reaches its year-end debt target. BofA cut its price target for Triumph to $12 from $17.