TransDigm Group IncorporatedTDGNYSE

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $1,672.49 per share(market-calibrated)

+26.1%

Upside to Fair Value

Current

$1,326.34

Pure Model

$1,719.15

Fair Value

$1,672.49

Bull Case

$2,311.71

Bear Case

$1,254.31

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.94%

Calibrated Growth

1.92%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $1,719.15.

What's Driving This Ratingfor TDG

✓

CapEx already efficient

CapEx at 1.70% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 57.70% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

↑

Strong near-term revenue growth

Analyst consensus projects 13.21% revenue growth in Year 1, fading to 7.89% by Year 5 and 2.25% by Year 10. Revenue reaches $16.3B by Year 10 (vs $8.8B today).

🎯

Market pricing in lower growth than model

The market implies only 0.94% perpetual growth — 131bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 76.16% indicates efficient cash generation. FCF reaches $7.6B by Year 10 (46.45% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.90

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.53%

Cost of Debt

Pre-tax Cost of Debt4.20%

Tax Rate21.11%

After-tax Cost of Debt3.32%

Equity Weight (E/V)71.99%

Debt Weight (D/V)28.01%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (71.99% × 8.53%) + (28.01% × 3.32%)

= 7.07%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$10.0B	$11.6B	$13.1B	$14.8B	$16.3B
EBIT	$5.8B	$6.7B	$7.6B	$8.5B	$9.4B
Tax	$1.2B	$1.4B	$1.6B	$1.8B	$2.0B
NOPAT	$4.6B	$5.3B	$6.0B	$6.7B	$7.4B
+ Depreciation	$329M	$381M	$432M	$487M	$538M
- Capex	$170M	$197M	$223M	$251M	$278M
- Δ NWC	$350M	$234M	$288M	$237M	$108M
Free Cash Flow	$4.4B	$5.2B	$5.9B	$6.7B	$7.6B
Discount Factor	0.934	0.815	0.711	0.620	0.505
Present Value	$4.1B	$4.3B	$4.2B	$4.2B	$3.8B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.6B

Terminal Growth Rate2.25%

WACC7.07%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$161.1B

PV of Terminal Value$81.4B

Exit Multiple Method

Year 10 EBITDA$10.0B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$179.4B

PV of Terminal Value$90.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$41.3B

PV of Terminal Value$81.4B

Enterprise Value$122.7B

(-) Net Debt$27.2B

Equity Value$95.4B

Shares Outstanding58M

Price per Share$1,639.69

Exit Multiple Method

PV of Projected FCFs$41.3B

PV of Terminal Value$90.6B

Enterprise Value$131.9B

(-) Net Debt$27.2B

Equity Value$104.7B

Shares Outstanding58M

Price per Share$1,798.60

Pure Model Fair Value

$1,719.15

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.07%	$2,314.29	$2,479.27	$2,702.78	$3,022.72	$3,254.11
6.07%	$1,894.45	$1,986.70	$2,103.10	$2,254.59	$2,459.84
7.07%	$1,593.31	$1,650.31	$1,719.15	$1,803.92	$1,910.90
8.07%	$1,361.91	$1,399.57	$1,443.70	$1,496.13	$1,559.44
9.07%	$1,175.94	$1,202.03	$1,231.96	$1,266.62	$1,307.24

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$1,254.31

-5.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.12

Base Case

$1,719.15

29.6% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.90

Bull Case

$2,311.71

74.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.76

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth13.21%

Year 3 Revenue Growth7.22%

Year 5 Revenue Growth7.89%

Year 7 Revenue Growth5.64%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin57.70%

Tax Rate21.11%

Historical Capex / Rev1.70%

NWC / Revenue30.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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