TransDigm Group (TDG): Softball Hearing Kills Bear Thesis - Deutsche Bank

Deutsche Bank analyst, Myles Watson, reiterated his Buy rating on shares of TransDigm (NYSE: TDG) on the belief that last week’s hearing by the House Armed Services Committee (“HASC”) indicates that that Congress will not create greater regulatory oversight to the detriment of TDG’s long-term business.

Last week, the HASC Subcommittee on Oversight and Investigations held a hearing on the defense contract audit process. While citing the clear merits of the organization and its function, the analyst believes it was clear from committee commentary that there were concerns that the auditing process was becoming unwieldy. Rep. Hartzler, was particularly concerned with the expanding backlog of audits, and the length of time and disruption to the DoD and the contractors. Currently, the DCAA has 885 days’ worth of backlog due to incurred cost audits and once an audit starts, it currently takes ~2 years to get through.

"Couple this hearing with another one last week by the whole HASC committee on acquisition reform - where the focus was more on bringing down the size of the civilian DoD workforce - and we think investors will be well served to consider the direction that Congress is actually heading on acquisition policy and not the direction that short reports are currently suggesting," the analsyt commented.

No change to the price target of $305.

For an analyst ratings summary and ratings history on TransDigm click here. For more ratings news on TransDigm click here.

Shares of TransDigm closed at $233.00 yesterday.

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