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Under-the-radar aircraft parts producer TransDigm Group is getting a lot of love from analysts this week, who view the stock as an optimal way to play the commercial aftermarket sector. And it’s no surprise given TransDigm’s latest earnings report released Tuesday, which showed the company beat analysts’ expectations during the fiscal first quarter, according to FactSet. TransDigm also raised its outlook, with commercial aftermarket revenues expected to grow more than anticipated. The tailwinds for TransDigm stem from several improving factors. That includes a strengthening aftermarket and China’s reopening, which should boost both international and domestic air travel there, said Morgan Stanley’s Kristine Liwag. So far, shares seem to support that thesis: They are up nearly 19% this year, following a 1% decline in 2022. TDG YTD mountain TransDigm’s year-to-date performance “We view TDG as the most elegant way to express a ‘long commercial aerospace aftermarket’ large cap view, especially given its steep valuation discount to [ Heico ],” wrote Cowen’s Gautam Khanna in a Tuesday note. He also said that “TDG’s end markets are in an upcycle that should last for years.” The company’s strong track record during previous recessions due to tight cost controls, cash deployment and pricing power should also protect it in a slowdown, Khanna wrote. TransDigm said Tuesday that orders in the quarter were ahead of shipments across segments, a sign that the company is situated for further growth, according to Goldman Sachs’ Noah Poponak. His $838 price target implies nearly 13% upside for shares from Tuesday’s close. “TDG stated intent to continue deploying capital in the near-to-medium term,” he wrote. “This remains one of the best business models we cover, tethered to the cyclical recovery and strong long-term fundamentals of commercial aerospace.” Morgan Stanley’s Liwag raised her price target on shares to $793 from $765, saying in a Wednesday note that the “beat and raise story” for the company is well positioned to continue. The new price target implies roughly 7% upside for shares from Tuesday’s close. “We view the company as having the most defensible business model amongst peers and management has overcome numerous short theses,” she said. — CNBC’s Michael Bloom contributed reporting
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