Morgan Stanley analysts reiterated an Overweight rating on TransDigm Group (NYSE:TDG), raising the price target on the stock to $1,000 from $793 in a note to clients Monday.
The analysts said the market is underestimating the aerospace and defense company's earnings growth from higher OE and aftermarket volumes, pricing, and the multiple expansion potential as it closes the valuation gap with peer, Heico.
"We view TransDigm (TDG) as the most defensible business model in commercial aerospace," the analysts declared. "The company has the second highest margin within the Industrials GICS for US companies above a $20bn market capitalization."
They added that over the last decade, TDG has "overcome short thesis after short thesis," and they do not expect the concerns to repeat.
So far this year, TDG shares are up more than 26%, while it has gained more than 44% in the last 12 months.
"TDG is a crowd favorite, but we expect to see TDG's multiples expand further as the market recognizes its unbreakable winning business model, strong earnings potential, and capital deployment upside from further leverage," the analysts added.