TransDigm Group Incorporated (TDG): what the price requires

At today's price, TransDigm Group Incorporated (TDG) is priced for +11.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-17 · Source: https://boothcheck.com/report/TDG

Headline

FieldValue
TickerTDG
CompanyTransDigm Group Incorporated
Sector / IndustryIndustrials / Aerospace & Defense
Current price$1235.41/sh
CompositionCommercial and non-aerospace OEM 24% / Commercial and non-aerospace aftermarket 32% / Defense 43% / Non-aviation 2%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed9.6%
Operating margin today46.1%
Margin compression implied-36.5pp
Implied growth11.3%
Multiple paid23x operating income

The operating-margin requirement is derived from the framework's value band at year 8, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 8% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.7pp.

Reconcile: at the x-ray's 9.3% required return this reads ~20.9%/yr; the models below use their own rates.

How unusual the bet is: within-range

ReferenceValue
vs own history-0.68σ
cohort percentile (of 225 peers)54
sustained it ~5 years at this level52%
implied end-window share0%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset—0—
Earnings3.57x3expensive
Relative2.70x5expensive
Growth1.13x3expensive

Families that justify the price: Growth Families that call it expensive: Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 6.8%); the inversion above states its own rate.

Per-Model Detail (n=11)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$1070.201.15xyesFCF base $2.0B, growth 13% (input: historical growth), terminal g 4.0%, WACC 6.8%, 6yr projection
DCF Exit MultipleGrowth$1484.050.83xyesExit EV/EBITDA: 19.5x / 21.5x / 23.5x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$931.111.33xyesP/E 25.76x (blended: static sector reference 22x + trailing (TTM) 35x), scenarios: 21.2x / 25.8x / 30.3x (bear / base = reference held flat / bull), EV/EBITDA 16.25x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset——no—
Two-Stage Excess ReturnAsset——no—
Discounted Future Market CapGrowth$1089.331.13xyesRev $9.5B, growth 13% (input: historical growth; tapered), Terminal P/S: 6.2x / 7.6x / 8.9x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative$384.483.21xyesEPS $32.04, growth 10% (input: historical EPS growth), PEG=3.63 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$137.309.00xyesNormalized EBIT (5y avg op income, one-time charges added back) $3.21B × (1−23%) / WACC 6.8% → EPV (no growth)
Residual IncomeAsset——no—
Graham NumberAsset——no—
EV/EBITDA RelativeRelative$639.621.93xyesEBITDA $4.63B × sector EV/EBITDA 14.0x
FCF YieldEarnings$0.01123541.00xyesFCF $1850.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median)
SBC-Adj FCF YieldEarnings$0.01123541.00xyesSBC-adj FCF $1.72B (FCF $1.85B − SBC $0.13B) capitalized at Kₑ (excluded from median)
Ben Graham FormulaEarnings$739.731.67xyesEPS $32.04 × (8.5 + 2×9.5%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative$326.603.78xyesRevenue $9.50B × sector P/S 2.0x
PEG Fair ValueRelative$457.722.70xyesEPS $32.04 × (PEG 1.5 × growth 9.5% (input: historical EPS growth)) → PE 14.3x
Earnings YieldEarnings$346.383.57xyesEPS $32.04 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$28.4b
Net debt / NOPAT (after-tax)8.73x
Net debt / operating income (pre-tax)6.68x
Interest coverage2.5x
Share count CAGR (buyback)-0.3%
Burning cashno

Bullet Takeaways

Bull Case

The counterintuitive fact about TransDigm is that it is not really a manufacturer, it is a toll collector on the installed base of aircraft flying today. The FY2025 10-K states that about "55% of our net sales in fiscal year 2025 were generated from the aftermarket, the vast majority of which come from the commercial and military aftermarkets", and that these revenues "have produced a higher gross profit and have been more stable than net sales" to original-equipment makers. A company that sells a jet-engine part once to Boeing then sells the replacement for that part for the 30-year life of the airframe, at prices it largely controls, is running an annuity dressed as an industrial. That is why a parts business earns a 46% operating margin.

The moat is regulatory and economic at once. The 10-K explains that once TransDigm's part is designed onto a platform, customers "will have a reduced incentive to certify another supplier because of the cost and time of the technical design and testing certification process". Recertifying an alternative part on a flying aircraft is expensive, slow, and safety-critical, so the incumbent keeps the position and the pricing. Demand is broad, not concentrated: the top ten customers were about 40% of sales and none individually exceeded 10%, so no single airline or OEM can squeeze the company.

The momentum is real and accelerating. Fiscal Q2 2026 net sales rose 18.3% to $2,544 million with organic growth of 11.0%, and all three channels, commercial OEM, commercial aftermarket, and defense, grew double digits, with commercial transport aftermarket up 16%. Management raised full-year revenue guidance to a $10,360 million midpoint. The company converts this into cash, trailing free cash flow of $1.85 billion at 89% of net income, and returns nearly all of it: $6.14 billion of dividends and buybacks over the trailing year. The bull case is a durable-compounding machine with structural pricing power that the static valuation methods cannot frame, which is exactly why only the growth-oriented method reaches the price.

Bear Case

TransDigm's revenue is levered to where aviation sits in its cycle, and the cycle is currently near its best. The FY2025 10-K is direct that "commercial aftermarket sales increased in fiscal 2025 compared to fiscal 2024 primarily due to the overall demand for air travel resulting in higher flight hours" and rising aircraft utilization. That mechanism is a tailwind today and a trapdoor in reverse: aftermarket revenue tracks how much the global fleet flies, and flight hours fall in recessions, fuel shocks, and demand slumps. The 46% operating margin and 18% growth the market is extrapolating are being earned at a cyclical high in air traffic, and peak flight hours are not sustainable flight hours.

The balance sheet turns that cyclicality into real risk. TransDigm runs a deliberately leveraged model, debt-to-equity of 3.34, an Altman score in distress territory, and a debt stack the 10-K details across multiple term-loan tranches, including $2,500 million in new Tranche M term loans and extended Tranche K loans maturing 2030. The company paid $5.29 billion in dividends over the trailing year, a scale of payout that only works if the aftermarket cash keeps flowing. In a downturn, the fixed debt service and the appetite for special dividends collide with falling flight-hour revenue, and the equity, which sits below all that debt, absorbs the gap. About 75% of gross debt is fixed rate, which helps, but the leverage itself is the vulnerability.

The valuation leaves no room for the cycle to turn. Only the growth-oriented method reaches today's price; the asset, earnings-power, and peer-multiple lenses all read it as richly valued, the price sitting nearly four times where earnings power alone lands and well into the upper half of the sector's peer multiple range. The market is paying about 24x company-wide operating income and implicitly assuming roughly 13% operating growth sustained for years, a pace only about 48% of comparable fast-growers held for even five. The business is excellent, but excellence is fully priced, and a slowdown in air travel would compress both the aftermarket margin and the multiple at the same time, against a balance sheet built for the good times to continue.

Valuation

TransDigm is the rare name where the valuation methods almost entirely disagree with the price, and naming that disagreement is the point. At $1,291.90 (July 11, 2026), only the growth-oriented method reaches the price. The earnings-power lens reads the stock at nearly four times what current earnings power supports, the peer-multiple lens at almost three times, and the asset lens is not meaningful for a company with negative book value from years of debt-funded payouts. When every static method says richly valued and only the durable-compounding frame reaches the price, the market is paying a moat and durability premium that trailing methods structurally cannot capture. That premium is the whole valuation.

Inverting the price makes the bet legible. The market is paying about 24x company-wide operating income, embedding roughly 13% annual operating growth for five years, a pace within what TransDigm has recently delivered but demanding in duration: only about 48% of comparable fast-growers sustained it even five years, and the price sits in the upper half of the aerospace-and-defense peer multiple range. The margin requirement is the reassuring part, the business only has to hold a fraction of the 46% operating margin it already earns, so the bet is not on margin expansion but on the aftermarket annuity persisting. The FY2025 10-K grounds why that margin exists: the aftermarket is "more stable than net sales" to OEMs and carries higher gross profit, the economic engine behind the premium.

Solvency is where the leveraged model gets underwritten. The framework reads leverage as moderate and well covered on current cash flow, but the raw structure is aggressive: debt-to-equity of 3.34 across the Tranche K and Tranche M term loans the 10-K describes, with about 75% fixed rate and $857 million available under the revolver. Free cash flow of $1.85 billion covers the interest comfortably while air traffic is strong. The valuation therefore reduces to a single question: does the aftermarket keep flying at these flight-hour levels long enough to justify a price that no static method supports? The price says yes with conviction; the methods say the margin of error is thin.

Catalysts

Fiscal Q2 2026 (the quarter ended March 28, 2026) was a strong beat-and-raise. Net sales rose 18.3% to $2,544 million from $2,150 million a year earlier, with organic sales growth of 11.0% and double-digit revenue growth across all three channels: commercial OEM up 12%, commercial transport aftermarket up 16%, and defense also double digits. Adjusted earnings of $9.85 per share beat consensus, and net income rose 11.9% to about $536 million. Following the quarter, management raised full-year fiscal 2026 guidance, lifting the revenue midpoint to $10,360 million.

The forward story runs on the same levers. Aftermarket demand tracks global flight hours and aircraft utilization, so the commercial travel environment is the swing factor for the most profitable revenue. Capital deployment is the other watch item: TransDigm returned $6.14 billion through dividends and buybacks over the trailing year, including $5.29 billion of dividends, and its history of large special dividends and debt-funded acquisitions means capital-allocation announcements move the stock. The things to monitor are whether organic aftermarket growth holds in the double digits as comparisons toughen, the pace and multiples of any new acquisitions under the company's selective-acquisition strategy, and any special-dividend or refinancing action against the term-loan maturities. The next quarterly report is the immediate checkpoint.

Peer Cohorts (Per Segment, With Filing Citations)

Power & Control (reported)

Airframe (reported)

Non-aviation (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

FY2025 10-K · Q2 FY2026 earnings release

View the full interactive TDG report on boothcheck