TransDigm stock price target lowered to $1,490 by Jefferies on aftermarket concerns

Investing.com - Jefferies has lowered its price target on TransDigm Group (NYSE:TDG) to $1,490.00 from $1,650.00 while maintaining a Buy rating on the aerospace components manufacturer. The new target still represents significant upside from the current trading price of $1,281.73, though InvestingPro analysis suggests the stock is currently trading above its Fair Value.

The firm has also removed TransDigm from its Franchise Picks list, noting that the company’s EBITDA multiple has compressed 4% since December 2023, while its nearest peer Heico has expanded by 46% and the S&P 500 has grown by 10%.

Jefferies attributes part of TransDigm’s underperformance to lower aftermarket volumes, which have decreased 3 percentage points compared to peers since fiscal year 2023, potentially related to lower M&A contribution (3 percentage points versus the historical 8 percentage points).

The research firm points out a 0.64 correlation between M&A activity and aftermarket performance for TransDigm, suggesting the relationship between these business factors is significant.

After distributing two special dividends, TransDigm now has approximately $6 billion of capacity for acquisitions compared to an expected $15 billion at fiscal year-end 2024, which Jefferies calculates could be 3% accretive to earnings per share at a 14X transaction multiple.

In other recent news, TransDigm Group reported its third-quarter earnings for fiscal year 2025, which fell short of analysts’ expectations. The company’s earnings per share (EPS) were $9.60, missing the forecast of $9.86, while revenue came in at $2.24 billion, below the expected $2.29 billion. Additionally, TransDigm’s Board of Directors announced a special cash dividend of $90.00 per share, set to be paid on September 12, 2025. The company also secured funding for a $5.0 billion debt package, which includes $500 million in Senior Secured Notes and $2.0 billion in Senior Subordinated Notes, both maturing in 2034, along with $2.5 billion in term loans due in 2032.

RBC Capital recently downgraded TransDigm from Outperform to Sector Perform, citing uncertainty in mergers and acquisitions despite acknowledging the company’s high quality in the aerospace and defense sector. Meanwhile, UBS raised its price target for TransDigm to $1,839 from $1,815, maintaining a Buy rating on the company’s stock. These developments highlight ongoing financial strategies and market assessments impacting TransDigm.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.