Canaccord Says Citron's Short Report On TransDigm Creates Buying Opportunity

On January 20, Citron Research published a report on TransDigm, saying President Donald Trump will now come after the company and its aggressive pricing for defense work.

On Short Note, Buy TransDigm

“While TDG is known for its aggressive pricing, we believe the report contains several misleading statements which lower its credibility,” analyst Ken Herbert wrote in a note.

Herbert pointed out the company does not use shell distributors and does not control distributors as claimed in the report. Also, TransDigm's sales to the U.S. DoD are well less than the 30 percent alleged in the report. The analyst estimate total U.S. defense sales are about 20–25 percent of total sales.

Herbert expressed confidence in the company’s business model and believes that even now, the stock will benefit from improving fundamentals and correct the recent under-performance.

Immeasurable Power At The President's Fingertips

However, the analyst does acknowledge that even one tweet from Trump mentioning TransDigm would pressure the stock. That said, Herbert noted that the company’s $950 million in FY 2016 defense sales, if this were all direct to the U.S. DoD, it would place number 32 on the list of companies with direct sales to the DoD.

“We continue to like TDG for its commercial AM exposure, strong execution, and the potential upside from acquisitions, even in today's rising rate environment and with Increased uncertainty from the Trump presidency,” Herbert added.

At last check, shares of TransDigm fell 2.45 percent to $221.33.