TDG - Embedded Expectations Analysis - 2021 06 22
TransDigm Group Incorporated (TDG:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 31.2x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about growth targets, domestic travel recovery, and commercial aftermarket bookingsSpecifically, management may lack confidence in their ability to sustain EBITDA margin growth, maintain strong aftermarket freight sales, and meet defense revenue growth targets. Also, they may have concerns about declining commercial aftermarket bookings, the pace of recovery in domestic travel, and inflationary cost pressures. In addition, they may lack confidence in their ability to continue investing in automation and cost reductions, capitalize on the return of air traffic volumes, and fulfill urgent consumable parts orders. Finally, they may be overstating the potential of their Cobham Aero Connectivity acquisition, their focus on value creation through their capital structure, and the progress of the Department of Defense audit
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
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- 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
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