Transdigm Group Incorporated (TDG)

Conclusion

TransDigm Group designs, produces and supplies aircraft components across its Power & Control, Airframe and Non-Aviation segments. On 9 November 2026 the share traded at 1218.85 USD, giving a market capitalisation of 68.17 billion USD and an enterprise value of 98.89 billion USD.

The verdict is fair. Today's price-to-earnings ratio of 32.0 sits 23.7% below its ten-year median of 42.0, and EV/EBITDA of 19.6 sits 12.3% below its median of 22.3. The discounted cash flow gives 796.53 USD per share, while the fair value from historical multiples is 1386.90 USD. The fair value band runs from 873.37 to 1310.06 USD with a midpoint of 1091.72 USD, a margin of safety of -10.4% at the current price. The reverse DCF implies 15.7% annual growth, against 11.6% revenue growth and 10.0% free cash flow per share growth over five years.

The case rests on returns and cash generation. ROIC of 17.5% against a WACC of 7.9% gives a ROIC minus WACC spread of 9.6%, and five-year free cash flow conversion is 99.1%. The weakest numbers are net debt to EBITDA of 6.08, interest coverage of 2.45 and an estimated insolvency probability of 11.4%. If leverage stays this high while growth slows toward the five-year rate, the implied growth in the price would become harder to deliver.

Financial health

Financial strength is red, held back by leverage and weak debt service. Net debt to EBITDA is 6.08 and interest coverage is 2.45, both assessed as bad. The current ratio of 3.02 and quick ratio of 1.92 are sound. The Altman Z-score is 1.82, in the grey zone. Insolvency risk: medium, about 11.4% by the estimate of the Ohlson model over one to two years. The company reports negative shareholders' equity, so debt to equity is not available.

Earnings quality

Earnings quality is green, supported by strong cash conversion and modest dilution. Free cash flow conversion is 90.5% on a trailing basis and 99.1% over five years. The accrual ratio is 0.15%, and free cash flow after stock-based compensation is 1.78 billion USD. The five-year share count rose at 0.31% a year, which is close to flat. The Piotroski score is 5 out of 9. The Beneish M-score is not available. The company beat earnings expectations in 7 of the last 8 quarters, with an average surprise of 2.98%. Next-year estimates were revised up 3.67% over 90 days.

Profitability

Profitability is green, with margins well above their own history. The operating margin is 46.2% against a ten-year median of 41.8%, and the net margin is 21.3% against 17.2%. The gross margin is 59.6% against 54.9%. Operating margin stability is 9.7%. ROIC is 17.5% against a WACC of 7.9%, and its five-year median is 16.0%. The DuPont split, as of September 2025, shows a net margin of 23.5% and an asset turnover of 0.39. Return on equity is not available because equity is negative, so leverage cannot be separated from returns in the usual way.

Growth

Growth is green, with compound rates above 10% over most horizons. Revenue compounded at 17.6% over three years, 11.6% over five years and 12.6% over ten years. Earnings per share compounded at 33.8%, 23.9% and 16.4% over the same periods. Revenue grew in 8 of the 10 comparable years. Consensus expects next-year earnings per share to grow 17.9%.

Valuation

Valuation is yellow, with the price in the fair range but below the midpoint. The price-to-earnings ratio is 32.0 against a ten-year median of 41.97, a premium of -23.7%. The price-to-free-cash-flow ratio is 35.4 against 37.9, a premium of -6.7%, and the price-to-sales ratio is 6.8 against 6.6, a premium of 3.9%. The free cash flow yield is 2.8%. The discounted cash flow uses a discount rate of 9.6% and a terminal growth rate of 2.5%, and terminal value makes up 56.7% of it. The dividend yield is 7.8%, but the payout is 274.6% of free cash flow, so the dividend is not covered by cash generation. The fair value band is built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target.

Risks

The main risk is leverage. Net debt to EBITDA of 6.08 and interest coverage of 2.45 leave little room if earnings fall, and an insolvency probability of 11.4% is material for an investor. A slowdown in earnings growth would weaken the case, since the reverse DCF requires 15.7% annual growth. The dividend, at 274.6% of free cash flow, depends on cash flow holding up or on balance-sheet capacity. The Beneish M-score and debt to equity are not available. This analysis has no debt maturity schedule and no revenue breakdown by segment, so refinancing timing and segment mix cannot be assessed.