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On Monday, UBS released a report detailing the current state and expectations for the global aerospace and defense sector, based on its latest aftermarket survey. The survey, which is the third of its kind conducted by UBS, forecasts approximately a 10% increase in aftermarket revenue for the latter half of 2025. This anticipated growth, however, comes with an expectation of decelerating price growth, estimated at 5.1%, a drop from the 7.4% projected in July 2024. Despite the deceleration, these figures still exceed the low single-digit averages seen before the COVID-19 pandemic. For deeper insights into aerospace sector leaders and their valuations, InvestingPro offers comprehensive analysis of over 1,400 US stocks through their Pro Research Reports.
The report also aligns with guidance from industry players such as Rtx Corp (NYSE: RTX) and TransDigm Group Inc (NYSE: TDG), which both predict high single-digit to low double-digit growth ranges. TransDigm, currently valued at $75.67 billion, has demonstrated strong performance with a 16.91% revenue growth over the last twelve months and impressive gross profit margins of 59.97%. According to InvestingPro analysis, TDG is currently trading above its Fair Value, though the stock has delivered a robust 21.58% return over the past year. The survey participants expect the most significant revenue increases to occur in the engine and airframe segments of the market.
UBS’s analysis suggests a shift in the pricing landscape, indicating that the period of double-digit price increases has ended. Nonetheless, the report maintains that mid single-digit price increases are likely to continue. Additionally, the survey highlighted an uptick in optimism among industry participants, with more reporting a positive business outlook for the next six to twelve months.
The findings from UBS’s expert call reinforce the survey’s perspective, providing further evidence of sustained growth in the aerospace and defense aftermarket sector. The report’s data suggests that while the industry may be moving past the era of rapid price increases, a stable growth trajectory is expected to continue, supported by a more optimistic business sentiment among sector participants.
In other recent news, TransDigm Group Inc. reported its first-quarter earnings with adjusted earnings per share of $7.83, surpassing analyst expectations of $7.64. However, the company’s revenue of $2.01 billion fell slightly short of the $2.02 billion estimates. TransDigm’s EBITDA increased by 16.3% to $1.06 billion, with margins expanding to 52.9%. The company reaffirmed its revenue guidance for fiscal 2025, expecting between $8.75 billion and $8.95 billion, aligning with analyst projections. Additionally, TransDigm slightly raised its adjusted EPS outlook for the year. In analyst actions, UBS upgraded TransDigm’s stock rating from Neutral to Buy, raising the price target to $1,595 from $1,502. The upgrade was driven by expected aftermarket growth and margin expansion. Furthermore, TransDigm held its Annual Meeting of Shareholders, where all ten director nominees were re-elected, and Ernst & Young LLP was ratified as the independent auditor for fiscal year 2025.
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