Barclays: TransDigm A 'Victim Of Its Own Success,' Moves To Top Pick In Aerospace & Defense

Carter Copeland of Barclays named TransDigm Group Incorporated TDG as a top pick in the Aerospace & Defense space as the name is riddled with misinformation or exaggeration.

For example, TransDigm's stock was hard hit last week after Ro Khanna, a U.S. representative for California's 17th congressional district requested an investigation into the company for potential waste, fraud and abuse in the defense industrial base.

According to Copeland, TransDigm's business and pricing model may be more aggressive than its peers in the aero aftermarket, its return profile is not unique. Moreover, any potential government action that can alter any existing terms of business could prove to be "relatively insignificant" in the context of the company's overall portfolio.

Victim Of Its Own Success

Copeland further suggested that in several ways, TransDigm is "suffering from a victim of its own success effect" as the stock has been an attractive target among shorts after delivering impressive returns relative to its peers since its 2006 IPO.

"We've always felt that shares could be susceptible to 'breaking' from a valuation standpoint in the event of a multi-faceted crisis of confidence, but we thought that those facets would include things like executive turnover, significantly higher financing costs, or declining asset quality in TDG's M&A deal flow, not hopes for government pressure on returns or accusations of fraud," the analyst wrote.

Shares remain Overweight rated with an unchanged $310 price target.

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