TransDigm Earnings: Air Travel Rebound Fuels Rapid Restocking of Service Parts

After TransDigm TDG reported third-quarter results and revised its expectations for 2023 upward somewhat, we forecast accelerated revenue and profit growth in the near term and have increased our fair value estimate to $760 per share from $730, primarily reflecting rapid sales of aftermarket parts that drove impressive margin expansion at this wide-moat business. Overall, commercial air travel is rebounding almost to 2019 levels, and with Chinese air travel restarting earlier in 2023, TransDigm has seen more demand than expected for its portfolio of service parts.

We have also decreased our Uncertainty Rating for TransDigm to Medium from High because the air travel recovery is well underway. Our Uncertainty Rating change was also informed by a quantitative methodology to help calibrate our fundamentals-based assessments of uncertainty across a broad universe of stocks.

We anticipate that TransDigm can grow faster than the overall aircraft parts and service market because of its consistent organic growth supplemented by acquiring smaller companies. TransDigm has demonstrated capacity to increase pricing, even in times of distress in the aerospace market, and we expect increasing flight activity to drive a years-long recovery in this market.