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TransDigm Underperforms Despite Growth

Posted on January 10th, 2022

TransDigm Group, Inc. (TDG) saw slow growth over the past year and slid on the WhaleWisdom Heatmap to a ranking of 25 from 3. The company underperformed the S&P 500, with the stock rising by about 11.5% compared to the S&P’s gain of approximately 44.5% over the past 2 years. Despite its uninspiring performance, hedge funds have been actively adding TransDigm’s shares to their portfolios.

TransDigm is an aerospace company that designs and manufacturers engineered aerospace components, systems, and subsystems. The company is organized into three segments: Power & Control, Airframe, and Non-aviation. The Power & Control and Airframe segments include major customers such as airlines, third-party maintenance suppliers, subsystem suppliers, military buying agencies, and repair depots. Non-aviation products are marketed primarily to child restraint system suppliers, off-road vehicle suppliers, subsystem suppliers, mining and construction equipment suppliers, and satellite and space system suppliers.

The aerospace industry, like many others, was negatively impacted by the coronavirus pandemic in 2020 and 2021, and this is visible when tracking TransDigm’s long-term growth. Airlines saw passenger traffic dramatically lowered, but overall, the aerospace industry has proven resilient. TransDigm also faced the challenges of a multi-year Pentagon investigation into the pricing of its aerospace parts. Fortunately, the investigation results do not appear to have impacted TransDigm’s military contracts, and these remain a future revenue source.

Hedge Funds Are Buying

TransDigm has the attention of hedge fund managers and institutions. Looking at activity by the top hedge funds in the third quarter, the aggregate 13F shares held increased to about 18.0 million from 17.6 million, an increase of approximately 2.7%. Of the hedge funds, 28 created new positions, 58 added to an existing holding, 19 exited, and 49 reduced their stakes. Institutions were buying, and aggregate holdings increased mildly by about 0.3% to approximately 53.2 million from 53.0 million. The long-term 13F metrics between 2006 and 2022 suggest that TransDigm remains on an upward trend.


Encouraging Multi-year Figures

Analysts expect to see earnings rise over the next two years, with increases in growth estimated to bring earnings per share to $16.14 by September 2022 and $21.07 by September 2023. Year-over-year estimated increases could also bring revenue to close to $6.0 billion by 2023, up from a predicted $5.4 billion in 2022.


Favorable Price Targets

Many analysts appear to be encouraged by third-quarter results and raising price targets. Analyst Michael Ciarmoli of Truist Financial Corp. raised TransDigm’s price target to $786 from $600 and upgraded the company to a Buy. Ciarmoli noted that TransDigm would benefit from increased demand in commercial aerospace aftermarket parts. Morgan Stanley analyst Kristine Liwag is bullish on the stock and its growth potential, naming TransDigm her top pick in aerospace in North America for 2022. Liwag gave the aerospace company an Overweight rating and a $762 price target. Seth Seifman of JPMorgan Chase & Co. expressed optimism about TransDigm and raised the firm’s price target to $670 from $665 and kept a neutral rating on shares.

Favorable Outlook

The future holds promise for TransDigm, as the company continues to weather the pandemic and slowly rebound with the aerospace industry. With optimistic estimates from analysts, in addition to institutions and hedge funds buying, investors may be encouraged to view TransDigm as an investment opportunity.

This entry was posted on Monday, January 10th, 2022 at 8:19 am and is filed under Stock. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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