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Morgan Stanley analysts told investors in a research note on Monday that TransDigm’s (NYSE:TDG) conservative 2023 outlook provides the potential for a beat and raise story.
The analysts, who have an Overweight rating and $801 price target on the stock, remarked that the aerospace manufacturing company reported another strong quarter driven by continued aerospace recovery and better-than-expected performance in defense.
However, the analysts feel the company’s 2023 outlook was conservative “given the remaining runway for air traffic recovery (65% recovered based upon YTD August RPKs, 74% recovered as of Aug. ’22 vs. Aug. ’19 RPKs) and potential for further pricing increases due to the sustained inflationary environment.”
“Further commercial aftermarket upside can come from momentum towards China re-opening or sustained supply chain constraints limiting OEM build rates. TDG has largely been able to avoid headwinds associated with supply chain and inflation, while utilizing rate derivatives to hedge rising interest rates,” the analysts added.
As a result, the firm continues to view TransDigm’s “leverage at 2023E of 5.3x as manageable” due to its ability to generate sufficient free cash flow to sustain and pay down leverage in the future.
TransDigm shares are down 1% Monday at the time of writing.
