TransDigm Group Incorporated (TDG): A Bull Case Theory

We came across a bullish thesis on TransDigm Group Incorporated on Rigatoni Capital’s Substack. In this article, we will summarize the bulls’ thesis on TDG. TransDigm Group Incorporated's share was trading at $1,312.48 as of Ocotber 14th. TDG’s trailing and forward P/E were 42.62 and 31.15 respectively according to Yahoo Finance.

TransDigm Group (TDG), a core 0.32% holding in the portfolio, designs and manufactures highly specialized aircraft components, including actuators, valves, pumps, sensors, cockpit controls, and seatbelts. The company benefits from durable demand due to its sole-source and proprietary products, with roughly half of revenue derived from aftermarket spare and replacement parts, ensuring recurring sales. Approximately 75% of sales are sole-source, providing strong pricing power, and about 90% of products are proprietary. TDG has a history of acquiring niche aerospace businesses, improving operations and margins, and scaling profitably through M&A.

In Q3 2025, TDG reported mixed performance. Commercial OEM revenue declined ~7% year-over-year, impacted by Boeing strikes, Airbus production ramp-up issues, and inventory destocking, while the commercial aftermarket grew ~6%, with robust double-digit growth in engine content and distributor sales. Defense revenues outperformed, up 13% across OEM and aftermarket channels. Despite OEM softness, cost discipline and focus on proprietary products lifted EBITDA margins to 54.4%, with organic growth of 6.3%, operating cash flow above $630 million, a cash balance near $2.8 billion, and net leverage down to 4.9x. EBITDA/interest coverage remained solid at 3.3x.

Leadership transitions include CEO Kevin Stein retiring and COO Mike Lisman assuming the CEO role, alongside internal promotions signaling depth in management. TDG completed the $138 million Servotronics acquisition and agreed to acquire Simmonds Precision for $765 million, expected to add ~$350 million in revenue in CY25. FY25 guidance anticipates revenue of $8.79 billion, EBITDA of $4.725 billion, EPS of $36.74, and free cash flow around $2.3 billion. The company repurchased over 400,000 shares year-to-date and declared a $90 per share special dividend funded via debt. With its indispensable role in commercial and defense aviation, resilient aftermarket and defense growth, and strong M&A and capital return strategy, TDG remains a compelling long-term investment below $1,200 per share.

Previously we covered a bullish thesis on TransDigm Group Incorporated (TDG) by Summit Stocks in May 2025, which highlighted its dominant aftermarket model, proprietary aerospace components, pricing power, and disciplined M&A strategy. The stock has depreciated ~6.6% since coverage. The thesis still stands as TDG’s high-margin, recurring revenue and structural advantages remain intact. Rigatoni Capital shares a similar view but emphasizes Q3 2025 results, leadership changes, and new acquisitions.

TransDigm Group Incorporated is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 79 hedge fund portfolios held TDG at the end of the second quarter which was 78 in the previous quarter. While we acknowledge the potential of TDG as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.