TransDigm Group

TDG : NYSE : US$190.97

Target: US$200 
TransDigm Group, headquartered in Cleveland, Ohio, is a
leading supplier of engineered components and systems
for military and commercial aircraft. Approximately 90%
of sales are from proprietary products, and approximately
75% from sole-source products

Transportation and Industrials — Airlines and Aerospace
Investment recommendation
TDG announced it has wrapped up the financing for its $25 special
dividend. We believe leverage is now >6.0x, which is consistent with
prior peaks. Moreover, the company has lowered its weighted cost of
debt by ~1% through the refinancing. While the dividend is a positive
confirmation of the strong cash flow and aggressive balance sheet
management, to the extent that it signals a lack of significant
acquisitions, it appears to be a net negative. We maintain our BUY
rating and $200 price target.
Investment highlights
 While we applaud the special dividend, which was basically as
expected, it is difficult to view this as anything but slightly negative
for the M&A pipeline. The company still has significant capacity, but
the lack of meaningful deals is a concern. Key catalysts remain M&A
and capital return.
 Moreover, we believe commercial aftermarket growth could get
close to 10% and maybe just over for Q3/13, but we continue to see
full year commercial aftermarket up in line with guidance, high SS,
with little chance of market upside relative to expectations.
We are maintaining our BUY rating and our $200 price target


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