Deutsche Banks Downgrades TransDigm Group Inc; Time For Profit-Taking

Deutsche Bank downgraded TransDigm Group Incorporated TDG on Wednesday from Buy to Hold and maintained a Price Target of $190.

Analyst Myles Walton explained that “Transdigm continues to have one of the best business models we've found in commercial aerospace (and likely beyond). However, in the spirit of staying disciplined on valuation and seeing less favorable aftermarket trends ahead and less optionality on the balance sheet than usual,” the firm downgraded the stock.

The report noted that “TDG is up 28 percent in 2014 (including the $25/share special dividend) vs. the market’s 5 percent gain and aero’s 5 percent decline,” and that its “relative outperformance to commercial aero warrants profit taking.”

Myles also expected “the company to issue FY 201515 guidance when it reports 4QFY 2014 results, which we think may be disappointing given the relative run in the stock.”

The report concluded that the $190 Price Target is “based on 20X our CY2016 EPS estimate and is consistent with the company’s historical trading range. Risks to the upside include further capital deployment and acceleration in aftermarket sales growth rates. Risks to the downside include slowing aftermarket sales, defense spending declines, and rising interest rates.”

TransDigm Group Incorporated recently traded at $180.37, down 1.94 percent.