The aerospace industry is soaring, fueled by cutting-edge innovations like artificial intelligence, advanced air mobility (AAM), and unmanned systems. With the Department of Defense increasing its budget to $849.8 billion for fiscal year 2025, the aerospace and defense sector remains poised for continued growth.

TransDigm Group Incorporated (TDG) stands at the forefront of this thriving industry, specializing in aerospace components. With a robust portfolio of proprietary products and a proven track record of profitability, TDG is well-positioned to benefit from the aerospace industry's tailwinds.

The company’s impressive growth over the past year highlights its potential. The stock surged 9.1% in the past nine months and an impressive 30.6% over the last year, closing at $1,250.62 in the latest trading session. These gains reflect TDG’s ability to capitalize on the sector's continued expansion.

So, let’s take a closer look at the factors that could influence TDG’s performance in the near future.

Recent Developments

On July 31, TDG announced the successful completion of its $655 million acquisition of Raptor Labs Holdco, LLC, a portfolio company of L Squared Capital Partners. Raptor Scientific, renowned for its advanced test and measurement solutions, serves primarily the aerospace and defense sectors.

The integration of Raptor Scientific can foster growth by expanding TDG’s product offerings, creating new market opportunities, and boosting its competitive position within the growing aerospace aftermarket.

Earlier, on June 6, TDG completed the $1.385 billion acquisition of the Electron Device Business of Communications & Power Industries. Known for its leadership in electronic components and subsystems, CPI’s Electron Device Business is a significant player in the aerospace and defense market.

The acquisition could further amplify TDG’s standing in the aerospace sector by adding essential electronic components and subsystems to its portfolio. These moves would significantly bolster TDG's market share and position the company for accelerated growth.

Strong Financials

For the fiscal fourth quarter that ended September 30, 2024, TDG’s net sales increased 18% year-over-year to $2.19 billion. Its gross profit rose 15.3% from the year-ago value to $1.26 billion.

Additionally, the company’s adjusted net income and adjusted EPS grew 23.9% and 22.4% from the prior year’s quarter to $570 million and $9.83, respectively. As of September 30, 2024, TDG’s cash and cash equivalents amounted to $6.26 billion, compared to $3.47 billion on September 30, 2023.

Sound Historical Growth

Over the past three years, TDG’s revenue has grown at a CAGR of 18.3%. Meanwhile, its EBITDA rose at a CAGR of 25.7%. Plus, the company’s operation income (EBIT) and total assets increased at CAGRs of 28% and 9.8%, respectively.

Furthermore, during the same time frame, the company’s net income and EPS grew at respective CAGRs of 36.1% and 35.1%. The sustained performance highlights the company’s strong growth trajectory over the last few years.

Favorable Analyst Estimates

Analysts predict TDG’s revenue and EPS for the fiscal 2025 first quarter (ending December 2024) to rise by 13.1% and 8.1% year-over-year, reaching $2.02 billion and $7.74, respectively. The company has consistently exceeded consensus revenue and EPS estimates in each of the four trailing quarters, which is noteworthy.

For the full fiscal year ending September 2025, TDG’s revenue and EPS are expected to grow 12.1% and 10.5% from the previous year, reaching $8.90 billion and $37.55, respectively. The impressive growth reflects the company’s strong performance and ongoing upward momentum.

Looking further ahead to the next fiscal year ending in September 2026, TDG is projected to see additional growth, with revenue and EPS forecasted to rise by 8.3% and 15.3%, reaching $9.64 billion and $43.30, respectively.

High Profitability

TDG’s trailing-12-month gross profit margin of 58.84% is 84.2% higher than the industry average of 31.94%. Its trailing-12-month levered FCF margin stands at 73.77%, 987.1% higher than the industry average of 6.79%.

Additionally, TDG’s trailing-12-month net income margin of 21.59% outperforms the industry average of 6.50% by 231.9%. Moreover, the company boasts a trailing-12-month EBITDA margin of 48.97%, which is 248.3% above the sector average of 14.06%.

POWR Ratings Reflects Optimism

TDG’s fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. Our proprietary rating system also evaluates each stock based on eight distinct categories.

TDG has a B grade for Quality, which is justified by its higher-than-average profitability metrics.

Within the Air/Defense Services industry, TDG is ranked #22 out of 71 stocks. Beyond what is stated above, we have also given TDG grades for Growth, Value, Momentum, Sentiment, and Stability. Get all TDG ratings here.

Bottom Line

TDG has solidified its role as a dominant force in the aerospace industry, driven by a robust portfolio of proprietary products. With a consistent track record of profitability, the company is well-positioned to capitalize on the growing aerospace aftermarket, further enhancing its competitive edge.

Given TDG's impressive financial performance and favorable growth prospects, it stands out. Plus, as profitability continues to rise, the company’s strategic positioning in the aerospace sector could offer significant returns, making it an attractive buy for investors seeking growth potential.

How Does TransDigm Group Incorporated (TDG) Stack Up Against Its Peers?

Although TDG’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who currently exhibit even stronger POWR Ratings. So, consider these three A (Strong Buy) or B-rated (Buy) stocks from the Air/Defense Services industry:

Northrop Grumman Corp. (NOC)

Ducommun Incorporated (DCO)

Innovative Solutions and Support, Inc. (ISSC)

To explore more A or B-rated Air/Defense services stocks, click here.

What To Do Next?

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TDG shares were unchanged in premarket trading Wednesday. Year-to-date, TDG has gained 23.63%, versus a 25.36% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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