Author Topic: TDG - Transdigm  (Read 140014 times)

LongHaul

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Re: TDG - Transdigm
« Reply #270 on: December 29, 2016, 08:36:39 AM »
great work on the 10-K employee relations catch and the Glassdoor comments.  If you are serious, check out TDG subsidiary Glassdoor reviews.

I don't like TDG at all.  The Glassdoor reviews are the tip of the iceberg in my opinion.  I think mgmt is very short term oriented and jack up prices and cut expenses for short term gains. 

2015 TDG 10-K Notes
   No proforma sales growth in 2014, 2015 10-K, say immaterial
   But acquisitions added 15% to sales in 2014 and 11% in 2015 so were very material, odd perhaps on purpose hiding organic revenue growth.

You know what other company had short term oriented mgmt, lots of deals, jacked up prices and horrible Glassdoor reviews where organic growth was purposely unclear?

I talked to one guy who ran the aftermarket segment of an aerospace supplier.  He said that TDG had approached him to hire him and he said no.   He didn't think their business model was sustainable.   

Think about this from the perspective of Boeing or Airbus if TDG is overcharging their customers in the aftermarket.

If I was a huge giant and there was a small leech on me I might just ignore it.  But if it got big enough I would burn it off. 


BraveChieftain

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Re: TDG - Transdigm
« Reply #271 on: December 30, 2016, 12:32:54 PM »
They give very good disclosure on organic revenue. They say what $ acquisitions contributed and what $ was organic.

hooplaer23

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Re: TDG - Transdigm
« Reply #272 on: January 02, 2017, 08:14:58 AM »
My impression is also that TDG's price increases, while important, are much more modest than some of the 5x-20x price increases that Valeant would implement following acquisitions.  Would be interested to know if I am mistaken here. 

Liberty

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Re: TDG - Transdigm
« Reply #273 on: January 20, 2017, 07:22:24 AM »
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

thefatbaboon

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Re: TDG - Transdigm
« Reply #274 on: January 20, 2017, 08:25:47 AM »
Andrew Left has a short report on TDG:

http://www.citronresearch.com/wp-content/uploads/2017/01/TDG-final-a.pdf

Interesting. Although not sure this one is going to work so easily for the short sellers.  Transdigm seems too obscure for the mainstream media/politicians to have anything more than a passing interest.  And surely it will take more than passing media/political attention attention to really reinvent the way things get specced and spared for aircraft.  Without that being overhauled its not so easy to shift transdigm products out of the fleet or hammer prices the way the PBMs did to Valeant.

obviously just my 2 cents. 

scorpioncapital

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Re: TDG - Transdigm
« Reply #275 on: January 21, 2017, 10:06:41 AM »
I can see the stock being cut almost in half from $230/share. The risk is not insignificant. Look at IBM...If growth stalls and high debt and the market re-rates the business to only slightly above average (although some might say IBM has a moat and look at it having traded recently at 10x earnings) then at $11.84 2017 earnings x (let's be generous) 15x = $177/share. But you'd think at 15x, a company would have some growth. If pricing power unwinds, then you go in reverse, and might even go to low $100s...Not saying this will happen, but this appears to be a case of front loading growth. Even the Fed does it with interest rates so it's not entirely unheard of. But the second part of the movie, after the intermission, needs some consideration. To their credit they own above average assets with moat-like attributes. The high debt can make any changes in that dynamic highly sensitive .

thefatbaboon

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Re: TDG - Transdigm
« Reply #276 on: January 21, 2017, 12:43:24 PM »
Why do you think pricing power would unwind?  Transdigm has parts on nearly every commercial plane being built or flying around today.  Do you think Boeing, Airbus, Gulfstream etc are speccing Transdigm OEM parts because a doctor prescribes them?   If they could get better parts elsewhere for less then that's what they would be doing.

Citroen suggests there's been some dishonesty by Transdigm in the DoD bidding process - but offers zero evidence.  As for the price gouging examples, the data they give is almost completely useless as it has no specifics regarding potential differences of versions of the item priced (assuming it is even the same), or the times of the different prices.  They also have offered zero justification for the assumed "organic decline rate".  It could be tactics - and maybe they will deliver more evidence in the coming days/weeks.  But so far I can see nothing useful in this report.

As you say with a heavy debt load any revaluation of the business' EV hits the equity hard.  That's simple arithmetic and obviously true.  But I guess I don't see the equivalent of Philidor type distribution or Jublia type product.  Transdigm sells thousands of relatively low cost parts for use on thousands of planes with terms established by commercial negotiations between grown-up businesses under the auspices of FAA regulation.  There are no insurance companies, or rebates, or doctors, or simple minded patients with fungus or sexual dysfunction.  If Boeing wanted different actuators on it's 777 it would specs it.  If Ryanair wanted to buy different aftermarket seat belts they would. And if competitors thought they could make a buck selling Transdigm type products they would pay for testing and get them passed by the FAA.   

scorpioncapital

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Re: TDG - Transdigm
« Reply #277 on: January 21, 2017, 03:23:32 PM »
I agree it doesn't look like Valeant. Sometimes I think without articles like this a stock would over time meet its natural strengths and weaknesses simply by the results achieved or obstacles encountered. Notice that in this report he tries to say its worth $166 and not a zero like he claimed for Valeant. He clearly does not believe his headline hence the question mark. A slowing of price increases and debt to market cap approaching 50-50 with an interest rate between 4% and 7% could result in some turbulence ahead.

cmlber

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Re: TDG - Transdigm
« Reply #278 on: January 21, 2017, 04:33:35 PM »
I agree it doesn't look like Valeant. Sometimes I think without articles like this a stock would over time meet its natural strengths and weaknesses simply by the results achieved or obstacles encountered. Notice that in this report he tries to say its worth $166 and not a zero like he claimed for Valeant. He clearly does not believe his headline hence the question mark. A slowing of price increases and debt to market cap approaching 50-50 with an interest rate between 4% and 7% could result in some turbulence ahead.

Actually, his price target was not zero for VRX, it was $50.  He's a con artist who shorts stocks, publishes scare pieces, then closes out when they fall and he got lucky one time with VRX and now everyone pays attention to him.  His original scare piece on VRX and R&O Pharmacy turned out to be nothing.  His price targets are established by randomly picking numbers materially lower than the current price.

He made it seem like this is a defense business in that piece, when in reality it's probably 30% defense, if that much.  He also pitched this as wait until the government actually cares about prices, TDG is in for trouble, but then his own piece linked to a report where the government did try to reduce TDG prices in 2006 and nothing happened.

hooplaer23

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Re: TDG - Transdigm
« Reply #279 on: January 21, 2017, 05:18:12 PM »
If you take a look at the full Inspector General report mentioned (http://www.dodig.mil/audit/reports/FY06/06-055.pdf), it makes many of the same points made in the Citron report.  It even talks about the use of dealers and how they are not independent of the manufacturer, which sounds like what Citron is talking about with its reference to "multiple shell distributors."  Here is an excerpt from PDF page 17 of the report:

"A sole-source manufacturer and a dealer cannot compete independently when the dealer is reliant on the sole-source manufacturer to fill the Government requirement. In the procurements reviewed, the prices quoted by the dealers were higher than the sole-source manufacturer and the delivery terms were mostly favorable to the sole-source manufacturer. As a result, the sole-source manufacturer was able to set the market price and had an inherent advantage in winning contract awards. Further, we surveyed 10 dealers about their normal processes when they quote prices for a Government requirement. The dealers consistently stated that they do not stock these parts and normally contact the sole-source manufacturer when a Government requirement becomes known. As a result, the dealers are not independent of the sole-source manufacturer."

But despite this report, as the previous post mentioned, 12 years later there does not seem to have been much of an impact on the company's defense business (of which the U.S. military is a subset).  I think the big question is whether the combination of the current political climate and Transdigm now being a bigger business makes it more likely that the government would be more effective in negotiating on price with Transdigm.  And then the follow on question is whether any scrutiny of pricing would carry over into the commercial aftermarket business, where a big portion of the company's profits are made.  In Citron's analysis, which removes the effect of price to calculate the impact on EBITDA and EPS, the assumption is that any pricing benefit is removed from the entire business, not just the defense business.  Given that the company likely does not make much margin on the commercial OEM part of the business to begin with, the pressure on pricing would have to come from the airlines, not simply Boeing and Airbus.