TransDigm continues to win share on new aircraft programs and can generate $84 million in incremental earnings before interest, taxes, depreciation, and amortization and incremental annualized earnings of $0.10 per share if it invests $891 million on mergers and acquisitions annually, the firm's analysts said in a note Friday.
Analysts Kristine Liwag and Matthew Sharpe also forecast improving EBITDA margins for the aerospace component manufacturer as the industry continues to recover from the effects of COVID-19. TransDigm's parts manufacturer approval growth could drive greater commercial aftermarket mix, powering margin expansion,
Meanwhile, Liwag and Sharpe expects Northrop Grumman to see growth in its space portfolio as the prime contractor for the B-21 bomber and the ground-based strategic deterrent intercontinental ballistic missile program. This will provide the company substantial visibility and stability for long-term earnings power, they said.
Morgan Stanley reiterated its overweight ratings on the two companies' stock with a price target of $762 for TransDigm and $440 for Northrop Grumman.
Looking back at 2021, the analysts said Textron (TXT) was the top performer in the aerospace and defense industry with its stock up roughly 61% year-to-date driven by strong demand for business jets.
Virgin Galactic's (SPCE) stock was down about 45% year-to-date under pressure from schedule shifts during the year and a prolonged period of no test flights, resulting in a lack of meaningful short-term catalysts, Liwag and Sharpe said.
Price: 634.01, Change: -0.40, Percent Change: -0.06
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