TransDigm Group Incorporated (TDG Quick QuoteTDG - Free Report) is set to report third-quarter fiscal 2016 results, after the closing bell on Aug 9.

Last quarter, the company posted a positive earnings surprise of 12.4%. TransDigm has managed to beat earnings estimates twice in the trailing four quarters, resulting in an average positive surprise of 10.8%.

Factors to Consider

TransDigm designs, produces and supplies highly engineered proprietary aerospace components and certain systems/subsystems. In fact, about 90% of its sales are generated by proprietary products, that is, products for which the company owns the intellectual property. This translates into consistent and sustained revenue generation capacity through all phases of the aerospace cycle. We believe that the company’s fiscal third-quarter results are expected to benefit from its robust proprietary sales.

Also, we believe that stable aftermarkets, which have historically produced higher gross margins, will be one of the major profit churners this earnings season. The company’s commercial transport industry has also been gaining traction over the past few months which is expected to boost third-quarter results.

This apart, the company has been consistently strengthening its highly-engineered proprietary aerospace business with strategic acquisitions. During the second quarter of 2016, TransDigm posted a 28.7% year-over-year increase in top line, as its accretive acquisitions contributed to sales and organic revenue growth. In this regard, we believe that the recently completed Breeze-Eastern Corporation buyout is likely to boost sales of proprietary aerospace components, thereby supplementing top-line performance during the third quarter.

Despite these positives, the company’s financials have been hurt by weak revenues from business jets and helicopters. This will likely dampen the third-quarter results as well. In addition, escalating debts and the consequent rise in interest expenses may weigh on the company’s financials.

Also, softness in global macroeconomic conditions is impacting air travel, adding to the company’s woes. Reduction in number of flight hours of customers can also thwart the company’s growth momentum.

Earnings Whispers

Our proven model does not conclusively show that TransDigm Group will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is currently 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.80.

Zacks Rank: TransDigm Group’s Zacks Rank #3, when combined with 0.00% ESP, makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Incyte Corporation (INCY Quick QuoteINCY - Free Report) has an Earnings ESP of +300.00% and carries a Zacks Rank #2. It will be reporting second-quarter results on Aug 9.

Alamos Gold, Inc. (AGI Quick QuoteAGI - Free Report) has an Earnings ESP of +100.0% and a Zacks Rank #2. It will report second-quarter results on Aug 10.

Mylan N.V. has an Earnings ESP of +1.75% and a Zacks Rank #3. The company is scheduled to report second-quarter results on Aug 9.

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