TransDigm's heavy debt load is a massive risk if anything goes wrong. It is levered over 5x EBITDA on the assumption it can grow organic EBITDA 4-6% forever without political pushback. Shareholders such as @PythiaR calling the debt an asset is a sign of extreme sentiment, and the market is underwriting 10 to 20 years out. x.com  x.com  x.com  x.com  x.com 

TransDigm's valuation has normalized to roughly the same multiple as 10 years ago, which looks reasonable, even cheap. Organic growth prospects are probably as good as before and COVID proved the business is a cockroach. Against that, M&A is less of an opportunity now given the law of large numbers, and rates are higher. It is probably less undervalued today than a decade ago, but not by much. x.com  x.com 

TransDigm looks more reasonably valued after its forward P/E fell from 40x to 27x on a $1.5B market value drop for withdrawing from a $1B acquisition. Walking away shows discipline, even though acquisitions are where TransDigm makes great money. @PythiaR argues the real issue is the DOJ's signal on its ability to do M&A, a key growth driver given its lack of engine exposure; that makes things a little tougher, but the company will find a way. x.com  x.com  x.com 

TransDigm's pricing power on critical sole-source parts plus disciplined capital recycling is why its multiple has held for a decade. About 90% of sales are proprietary and three-quarters sole source, with high-margin aftermarket at 55% of revenue; organic sales grew 13% last quarter. About $2.6B of free cash flow funds bolt-on deals and buybacks, with leverage at 5.8x. At about 18 times EBITDA after an 18% drop, cooling engine aftermarket growth should narrow the gap and rerate it. x.com  x.com  … Show more

TransDigm is run by an elite capital allocator, and compounding long-term with one is what it takes to outperform the market. During the 2008 financial crisis it paid a special dividend equal to 17% of its market cap, showing absolute shareholder alignment under Nick Howley. x.com