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TDG - Embedded Expectations Analysis - 2022 03 23

TransDigm Group Incorporated (TDG) currently trades near corporate and recent averages relative to Uniform earnings, with a 27.2x Uniform P/E.

At these levels, markets are pricing in expectations for Uniform ROA to expand to 65%, accompanied by 5% Uniform asset growth.

Similarly, analysts expect Uniform ROA to improve to 57% in 2023, accompanied by 11% Uniform asset growth.

If sustained going forward, these levels would imply a stock price closer to $764, representing approximately 16% equity upside for the firm.

Moreover, the firm's most recent earnings call suggests management may have concerns about the aircraft market, strategic forecasts, and capital allocation.
TransDigm Group Incorporated

TransDigm Group is a holding company. Through its subsidiaries, the company designs, produces and supplies aircraft components for use on commercial and military aircraft. The company's segments are: Power and Control, which develops, produces and markets systems and components that provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies; Airframe, which develops, produces and markets systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies; and Non-aviation, which develops, produces and markets products for non-aviation markets.

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Valens Research

In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:

  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
  • Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available

We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.

  • Corporate credit ratings remain years behind the fundamental underpinnings of company performance
  • Stock analysts continue to make recommendations with deeply inherent biases
  • Research firms have failed to break down the walls between credit, equity, and macroeconomic research
  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.

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