Author Topic: TDG - Transdigm  (Read 135118 times)

marazul

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Re: TDG - Transdigm
« Reply #190 on: December 23, 2015, 05:38:33 PM »
3D printing will help everyone in the testing of new parts, etc..but when it comes to manufacturing high volume units, 3D printing is not the most effective way. So to be honest, I don't think this will have a significant impact on the economics of the current players.


Picasso

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Re: TDG - Transdigm
« Reply #191 on: January 16, 2016, 09:58:29 PM »
Anyone else think this stock looks incredibly expensive in this environment?  I don't see how their debt will keep trading at current yields for deep, deep junk territory at 7x EBITDA especially with a big chunk coming due in 2018.  It seems to me like they are more likely to focus on reducing debt versus continuing acquisitions which takes off some upside risk on a short.  If their cost of funds go up to say 8-9% then your equity stub earns a heck of a lot less and it already has a fairly large enterprise value relative to the aerospace sector.

Just curious if anyone is shorting the name here.  It's got to be the only junk bond levered name that hasn't caught up to reality.

cmlber

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Re: TDG - Transdigm
« Reply #192 on: January 17, 2016, 08:20:59 AM »
Anyone else think this stock looks incredibly expensive in this environment?  I don't see how their debt will keep trading at current yields for deep, deep junk territory at 7x EBITDA especially with a big chunk coming due in 2018.  It seems to me like they are more likely to focus on reducing debt versus continuing acquisitions which takes off some upside risk on a short.  If their cost of funds go up to say 8-9% then your equity stub earns a heck of a lot less and it already has a fairly large enterprise value relative to the aerospace sector.

Just curious if anyone is shorting the name here.  It's got to be the only junk bond levered name that hasn't caught up to reality.

There is no debt coming due in 2018.  Earliest material maturity is in 2020.  They'll be down under 6x EBITDA in a year just by EBITDA growth (excluding debt pay down).  Unlevered this is yielding around 5% right now.  Historically they've grown organically by around 10%.  Sell 5% more parts each year due to traffic growth and raise prices 2-3%.  It's a simple formula that I think will continue for a long time.  If you get just the volume growth with no pricing growth, you still get 5% organic growth with a 5% yield and end up making 10% unlevered without any acquisitions. 

Low oil is great for TDG, older planes will fly longer meaning more aftermarket revenue.  Also, national security will be a big issue this election season and military spending will likely benefit.  Neither of those is material to the long thesis, but worth noting.

Picasso

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Re: TDG - Transdigm
« Reply #193 on: January 17, 2016, 10:14:31 AM »
You're right the nearest large chunk is actually 2020.  I think part of my thinking here is, and I may be wrong, there are a lot of stocks where low oil should be good for them and it just isn't happening that way in this environment.  At the same time you really need that organic growth to justify this price.

Just musing this over but downside on a short doesn't seem like a lot at this price.

thepupil

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Re: TDG - Transdigm
« Reply #194 on: January 17, 2016, 11:30:25 AM »
FWIW, Picasso, when I have spoken to market participants about the resilience of TDG against industrials, the roll-up complex, and the broader market and that it may be a possible short (because I noticed how well it was holding up too), I have been repeatedly told that TDG is actually deserves the "outsider/compounder/insert buzzword here" more so than many other companies. You can interpret that as complacency or whatever, but this has been repeated to me by people who were/are skeptical about a lot of the other companies. I have no opinion and no value to offer on the name other than my anecdote.

cmlber

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Re: TDG - Transdigm
« Reply #195 on: January 17, 2016, 02:19:07 PM »
You're right the nearest large chunk is actually 2020.  I think part of my thinking here is, and I may be wrong, there are a lot of stocks where low oil should be good for them and it just isn't happening that way in this environment.  At the same time you really need that organic growth to justify this price.

Just musing this over but downside on a short doesn't seem like a lot at this price.

That's true, but low oil is just a nice added bonus, if oil was $120 I'd still want to own TDG at this price. 

Yes, you need organic growth.  But the organic growth is very consistent and predictable imo.  Roughly every 15 years for the last 45 years airline traffic has doubled, and it is likely to do the same over the next 45 years.  Meanwhile, for the last 20 years TDG has raised prices every year as far as I can tell and is able to continue doing so because they are the sole supplier of low dollar, mission critical parts.

Larry

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Re: TDG - Transdigm
« Reply #196 on: February 09, 2016, 07:29:08 AM »
Results out.

http://finance.yahoo.com/news/transdigm-group-reports-fiscal-2016-121500731.html

Quote
Highlights for the first quarter include:

    Net sales of $701.7 million, up 19.6% from $586.9 million;
    EBITDA As Defined of $319.4 million, up 18.4% from $269.7 million;
    Net income of $114.9 million, up 20.3% from $95.5 million;
    Earnings per share of $1.97, up 20.9% from $1.63;
    Adjusted earnings per share of $2.27, up 26.1% from $1.80; and
    Upward revision to fiscal 2016 financial guidance.


Stock was down more than 12% shortly after opening. I think one reason is that their organic growth was down slightly. It seems like there was continued weakness with helicopters and business jets.

They bought back stock (which they dont do that often) during the last quarter and after it ended. I think it's interesting that they have decided to repurchase shares rather than take the leverage down, given the turbulence with bond markets and the fact that their leverage has been at the high end after recent acquisitions.

Call begins in 30 min, very curious to hear their thoughts.

cmlber

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Re: TDG - Transdigm
« Reply #197 on: February 09, 2016, 08:24:00 AM »
Results out.

http://finance.yahoo.com/news/transdigm-group-reports-fiscal-2016-121500731.html

Quote
Highlights for the first quarter include:

    Net sales of $701.7 million, up 19.6% from $586.9 million;
    EBITDA As Defined of $319.4 million, up 18.4% from $269.7 million;
    Net income of $114.9 million, up 20.3% from $95.5 million;
    Earnings per share of $1.97, up 20.9% from $1.63;
    Adjusted earnings per share of $2.27, up 26.1% from $1.80; and
    Upward revision to fiscal 2016 financial guidance.


Stock was down more than 12% shortly after opening. I think one reason is that their organic growth was down slightly. It seems like there was continued weakness with helicopters and business jets.

They bought back stock (which they dont do that often) during the last quarter and after it ended. I think it's interesting that they have decided to repurchase shares rather than take the leverage down, given the turbulence with bond markets and the fact that their leverage has been at the high end after recent acquisitions.

Call begins in 30 min, very curious to hear their thoughts.

Free cash flow is ~$600m / year growing organically by high single digits and the maturities are 5-9 years out (weighted average 6.5 years out).

If you assume 5% organic growth, which is much lower than historical, it would take 9 years to get to $0 net debt if all cash flow was used to pay down debt.  At that point, you'd have a debt free business earning $25/share growing at mid/high single digits organically.  So given how stable the cash flows are, I think the leverage is not nearly as risky as some perceive and am happy management continues to take advantage of low interest rates to add to borrowing to fund acquisitions/buybacks.

Larry

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Re: TDG - Transdigm
« Reply #198 on: February 09, 2016, 09:05:49 AM »
Yea, very good point. I have no problem with the leverage and that they are repurchasing stock. Afterall they know the situation and outlook much better than I do.

And I think free cash flow is higher than 600m. It has been +/- 50% of EBITDA as Defined so that would make +700m for FY16. If I remember correctly, in last call they said free cash flow is going to be 700-750m for FY16.
« Last Edit: February 09, 2016, 09:33:33 AM by Larry »

Schwab711

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Re: TDG - Transdigm
« Reply #199 on: February 09, 2016, 09:20:15 AM »
I doubt there will be any growth until the Dreamliner picks up. They have invested roughly $1b (my estimate) in related businesses over the past few years. They made a big bet on the model.