Transdigm Group (TDG) AI Stock Analysis

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Transdigm Group

(NYSE:TDG)

68Neutral

Transdigm Group's overall score reflects strong financial performance and positive earnings guidance, tempered by high leverage and valuation concerns. The technical indicators suggest a neutral market position, while challenges in the OEM segment present some risks.

Positive Factors

Aftermarket sales

TDG's commercial aftermarket guidance is affirmed with expectations of sales acceleration, supported by strong growth in the distribution channel.

Mergers and acquisitions

Analyst believes TDG has substantial cash to deploy for mergers and acquisitions, dividends, and share repurchases, enhancing future growth potential.

Stock repurchase

TDG's history of buying back its own stock at opportune moments is seen as a bullish sign for the stock.

Negative Factors

Commercial aftermarket growth

Aftermarket fears persist as commercial aftermarket growth was softer than the group average.

Growth outlook

The full year outlook suggests a sequential acceleration, but also implies lower growth in Q2-4 compared to Q1.

OEM revenue decline

Commercial OEM revenue was down 4% YoY with commercial transport revenue down 1% YoY and business jet/helicopter revenue down 8% YoY.

Transdigm Group (TDG) vs. S&P 500 (SPY)

Market Cap

$69.42B

Dividend YieldN/A

Average Volume (3M)263.20K

Price to Earnings (P/E)44.1

Beta (1Y)0.99

Revenue Growth16.89%

EPS Growth20.33%

CountryUS

Employees16,600

SectorIndustrials

Sector Strength63

IndustryAerospace & Defense

Share Statistics

EPS (TTM)28.34

Shares Outstanding56,084,587

10 Day Avg. Volume284,666

30 Day Avg. Volume263,201

Financial Highlights & Ratios

PEG Ratio2.17

Price to Book (P/B)N/A

Price to Sales (P/S)9.26

Price to Cash Flow (P/CF)25.10

P/FCF Ratio26.60

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$1,514.91

Price Target Upside22.99% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering11

Transdigm Group Business Overview & Revenue Model

Company DescriptionTransDigm Group Incorporated is a leading designer, producer, and supplier of highly engineered aircraft components for use in both commercial and military aircraft. Operating primarily in the aerospace sector, the company specializes in providing critical components such as ignition systems, pumps and valves, specialized AC/DC electric motors, batteries, and other aircraft systems. TransDigm's products are integral to the functionality and safety of aircraft, making it a key player in the aviation industry.

How the Company Makes MoneyTransDigm Group generates revenue through the design, manufacture, and sale of aerospace components and systems. The company's revenue model is based on both original equipment manufacturers (OEM) sales and aftermarket sales. OEM sales involve selling components directly to aircraft manufacturers, while aftermarket sales include providing parts and services for maintenance, repair, and overhaul of existing aircraft. The aftermarket segment tends to be more profitable due to the higher margins associated with replacement parts and ongoing maintenance services. TransDigm also benefits from long-term supply agreements and proprietary products, which allow for pricing power and recurring revenue streams. Additionally, the company has engaged in strategic acquisitions to expand its product offerings and market reach, further enhancing its revenue potential.

Transdigm Group Financial Statement Overview

Summary

Transdigm Group shows strong profitability and cash flow generation. Despite high leverage and negative equity, operational efficiency and revenue growth position the company positively, especially in the aerospace and defense industry.

Income Statement

Very Positive

The company demonstrates a strong revenue growth rate of 2.71% TTM, with robust gross and net profit margins of 58.74% and 22.38% respectively. EBIT and EBITDA margins are also impressive at 45.98% and 50.31%, indicating efficient operations and profitability.

Balance Sheet

Negative

The balance sheet reveals significant leverage, with a negative stockholders' equity resulting in a high debt-to-equity ratio, which presents financial risk. However, the company's ability to generate profits could help manage this leverage.

Cash Flow

Positive

The company exhibits strong cash flow management, with a 5.85% growth in free cash flow. The operating cash flow to net income ratio of 1.18 suggests healthy cash conversion from earnings, supporting liquidity.

TTM	Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Breakdown
Income Statement		Total Revenue
8.15B	7.94B	6.58B	5.43B	4.80B	5.10B
	Gross Profit
4.79B	4.67B	3.84B	3.10B	2.51B	2.65B
	EBIT
3.75B	3.53B	2.92B	2.21B	1.69B	1.75B
	EBITDA
4.10B	3.87B	3.21B	2.46B	2.06B	2.05B
	Net Income Common Stockholders
1.82B	1.71B	1.30B	866.00M	680.00M	699.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
234.31M	6.26B	3.58B	3.00B	4.79B	4.72B
	Total Assets
4.21B	25.59B	19.97B	18.11B	19.32B	18.39B
	Total Debt
3.18B	24.90B	19.60B	19.81B	20.02B	20.01B
	Net Debt
2.95B	18.64B	16.13B	16.81B	15.23B	15.29B
	Total Liabilities
3.62B	31.87B	21.95B	21.87B	22.23B	22.36B
	Stockholders Equity
596.26M	-6.29B	-1.98B	-3.77B	-2.92B	-3.97B
Cash Flow		Free Cash Flow
1.99B	1.88B	1.24B	829.00M	808.00M	1.11B
	Operating Cash Flow
2.16B	2.04B	1.38B	948.00M	913.00M	1.21B
	Investing Cash Flow
-2.42B	-2.44B	-900.00M	-553.00M	-785.00M	799.00M
	Financing Cash Flow
-1.41B	3.17B	-16.00M	-2.15B	-70.00M	1.23B

Transdigm Group Technical Analysis

Technical Analysis Sentiment

Negative

Last Price1231.75

Price Trends

50DMA

1340.37

Negative

100DMA

1311.72

Negative

200DMA

1291.12

Negative

Market Momentum

MACD

14.77

Negative

RSI

60.38

Neutral

STOCH

73.08

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TDG, the sentiment is Negative. The current price of 1231.75 is below the 20-day moving average (MA) of 1348.72, below the 50-day MA of 1340.37, and below the 200-day MA of 1291.12, indicating a bearish trend. The MACD of 14.77 indicates Negative momentum. The RSI at 60.38 is Neutral, neither overbought nor oversold. The STOCH value of 73.08 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for TDG.

Transdigm Group Risk Analysis

Transdigm Group disclosed 30 risk factors in its most recent earnings report. Transdigm Group reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Transdigm Group Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
NOC	78 Outperform	$70.28B	17.13	27.75%	1.71%	4.44%	110.33%
HEI	78 Outperform	$29.29B	59.80	16.18%	0.09%	23.06%	32.43%
LHX	76 Outperform	$37.93B	25.65	7.85%	2.34%	9.82%	22.33%
GD	75 Outperform	$67.10B	18.34	17.44%	2.27%	12.88%	13.78%
LMT	74 Outperform	$101.72B	19.37	81.04%	2.98%	5.14%	-19.14%
TDG	68 Neutral	$69.42B	44.09	-29.16%	―	16.89%	20.33%
Sector *	62 Neutral	$7.24B	12.39	3.08%	3.39%	3.63%	-14.35%

* Industrials Sector Average

Performance Comparison

TDG

Transdigm Group

1,231.75

80.08

6.95%

General Dynamics

254.40

-28.72

-10.14%

LHX

L3Harris Technologies

200.75

-1.25

-0.62%

HEI

HEICO

238.87

51.29

27.34%

LMT

Lockheed Martin

443.36

7.23

1.66%

NOC

Northrop Grumman

491.97

45.00

10.07%

Transdigm Group Earnings Call Summary

Earnings Call Date: Feb 4, 2025 | % Change Since: -8.95% | Next Earnings Date: May 13, 2025

Earnings Call Sentiment Neutral

The earnings call reflected a strong start to fiscal year 2025 with robust growth in commercial aftermarket and defense channels, significant cash flow generation, and strategic share repurchases. However, challenges remain in the commercial OEM segment due to the Boeing machinist strike and uncertainty in production rates. The interiors segment of the aftermarket continues to lag behind pre-pandemic levels.

Highlights

Strong Start to Fiscal Year 2025

TransDigm reported healthy growth in revenues for both commercial aftermarket and defense market channels. Operating cash flow generation was over $750 million with a cash balance of almost $2.5 billion.

Commercial Aftermarket and Defense Growth

Total commercial aftermarket revenue increased by approximately 9% compared to the prior year period. Defense market revenue grew by approximately 11% compared to the prior year period.

Share Repurchases

TransDigm repurchased approximately 250,000 shares, deploying just over $300 million of capital, reflecting confidence in their long-term return objectives.

Record Cash Flow

Free cash flow was over $800 million for the quarter, and the company expects to generate approximately $2.3 billion of free cash flow for the full fiscal year 2025.

Opportunities in M&A

The company continues to see an expanding pipeline of potential M&A targets, and does not expect this environment to slow down in the near term.

Lowlights

Commercial OEM Revenue Decline

Commercial OEM revenue decreased by approximately 4% in Q1 compared to the prior year period, impacted by the Boeing machinist strike affecting production lines.

Boeing Strike Impact

The Boeing machinist strike lasted roughly 12 weeks, impacting TransDigm's commercial OEM business and contributing to a sequential contraction of total commercial OEM revenues by 17% in Q1.

Uncertainty in OEM Production Rates

There is ongoing uncertainty regarding commercial OEM production rate progression and supply chain impacts as Boeing recovers from the machinist strike.

Interiors Segment Below 2019 Levels

The interiors segment of the commercial aftermarket remains below pre-pandemic levels, driven by a slower recovery in the refurb market.

Company Guidance

During the TransDigm Group's Q1 2025 Earnings Conference Call, the company provided guidance for fiscal year 2025, maintaining its prior projections despite strong first-quarter results. The midpoint of revenue guidance remains at $8.85 billion, representing an approximate 11% increase, with specific growth rate assumptions for market channels: mid-single-digit growth for commercial OEM, high single-digit to low double-digit growth for commercial aftermarket, and high single-digit growth for defense. The EBITDA guidance midpoint is $4.685 billion, an approximate 12% increase, with a margin expectation of around 52.9%. Adjusted EPS guidance has been slightly raised to $36.47, reflecting a 7% increase, due to share repurchases totaling approximately 250,000 shares at an average price of $1,249 per share. The company highlighted its strong start to the fiscal year with a 52.9% EBITDA margin, operating cash flow generation exceeding $750 million, and cash reserves of nearly $2.5 billion, while also discussing ongoing M&A activities and an active pipeline of potential targets.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.