TDG - Embedded Expectations Analysis - 2019 05 23
TransDigm Group Incorporated (TDG:USA) currently trades near historical highs relative to UAFRS-based (Uniform) Earnings, with a 22.3x Uniform P/E. Even at these levels, the market has bearish expectations for the firm, and management has concerns about revenue growth, the strength of the commercial aftermarket segment, and the Esterline integration progress.Specifically, management may lack confidence in their ability to sustain revenue growth, improve EBITDA margins, and drive intrinsic shareholder value. Moreover, they may be exaggerating older aircraft utilization rates and concerned about the sustainability of revenue passenger mile growth in the commercial aftermarket segment, as well as their ability to maintain shipment volume. Furthermore, they may be concerned about the Esterline integration progress, their ability to justify asset multiples, and their market segmentation.
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.
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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