TDG

We rate TransDigm Group INC (TDG) as a Hold with a composite score of 55.2/100 at a current price of $1293.67. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (86th percentile) and stability (82th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (35th percentile) and momentum (46th percentile) tempers our overall conviction. We assign a Narrow Moat rating (40/100), Low uncertainty, and Poor capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

TransDigm Group INC holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 55.2/100 places it at rank #1240 in our full 7,333-stock universe. With a $74.3B market capitalization, TransDigm Group INC operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 12%, though momentum at the 46th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 60% (+17.4pp vs sector) narrow to operating margins of 47% (+45.4pp vs sector) and net margins of 22.1%, yielding a gross-to-net conversion rate of 37%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $1293.67, TransDigm Group INC appears undervalued relative to its fundamentals. Our value factor score of 86/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 39.6x (a 78% premium to the sector median of 22.3x), EV/EBITDA of 25.9x (at a premium), P/S of 8.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to TransDigm Group INC. The company exhibits strong financial stability with a beta of 0.72, and a stability factor in the 82th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 82th percentile with quality at the 63th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 60% provide a buffer against cost pressures; above-average stability (82th percentile) suggests predictable business dynamics; large-cap scale ($74.3B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate TransDigm Group INC's capital allocation as Poor. Key concerns include low returns on equity (-26.0%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — TransDigm Group INC significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, TransDigm Group INC receives a Hold rating with a composite score of 55.2/100 (rank #1240 of 7,333). Our quantitative framework assigns a Narrow Moat (40/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 62/100.

Our analysis supports a neutral stance on TransDigm Group INC. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.