Why Triumph Group stock is soaring today

Triumph Group (TGI 32.31%) agreed to sell its product support business for $725 million. That’s cash that will immediately bolster the struggling aerospace company’s balance sheet. Investors were excited about the development, sending Triumph shares up more than 30% as of 1pm ET on Thursday.

Portfolio reorganization speeds up

Triumph is a collection of aerospace companies that have struggled in recent years. The company’s underfunded operations and ill-timed transactions that left it with a high debt load have caused its stock value to fall about 80% over the past decade.

The company has been trying to slowly reorganize its portfolio, selling off unprofitable businesses and restructuring those it wants to keep. On Thursday, Triumph announced plans to sell its product support business to the following companies: AAR (air) $725 million.

The deal values ​​the business being sold at approximately 15.5 times earnings before interest, taxes, depreciation and amortization (EBITDA) and will help lower Triumph’s debt balance. Triumph is preparing to retire bonds due in 2025 and pay off part of its debt due in 2028.

This will help increase profits because interest expenses will be reduced. It also avoids the risk of refinancing debt in future quarters when interest rates may still be at high levels.

Is Triumph a buy-in after a massive sell-off deal?

Triumph is still a work in progress, but for the first time in years the focus is clear and the company appears to be moving in the right direction. But there is still work to be done. Even after the sale, Triumph’s total debt remains roughly four times its adjusted EBITDA, leaving it with relatively little flexibility. The company is also trying to right-size its core business and undertake any further portfolio realignment.

The goal is for Triumph to move away from a commoditized business and into more priority assets with better pricing power, following the more successful aerospace stock model. TransDigm Group and hello. Although success has not yet been achieved, this sale is a definite step forward for patient investors.