UBS upgrades TransDigm on margin expansion, capital deployment

Investing.com -- UBS upgraded TransDigm Group Inc, now rated "Buy" from "Neutral," on stabilised aftermarket growth, margin expansion, and increased capital deployment.

The bank forecasts aftermarket growth between 10 and 11%, easing concerns of further deceleration. It also projects EBITDA margins to expand by 100 basis points per year, above consensus estimates of 40-60 basis points, while still conservative compared to historical trends.

“TransDigm is a compounder of earnings organically and inorganically, with a recurring and often sole-source business model. A more M&A friendly environment could be further upside to our numbers,” analyst said.

UBS noted that TransDigm's net leverage of 5X, within its 5-7X target range, could result in $12 billion in available capital by year-end and $24 billion by fiscal 2027.

The price target was raised to $1,595 from $1,502, reflecting higher EBITDA assumptions and a revised 21.0X 5-8 quarter EV/EBITDA multiple.

“We expect aftermarket growth to stabilize and accelerate from F1Q, with above-consensus margin expansion and the potential for a step-up in capital deployment,” analyst at UBS said.

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