Hello all, I am genuinely curious to hear your opinions. For a long time, I completely disregarded this sector because it just did not speak to me, and it felt hype based. It is obviously a bit shortsighted - as I reduced it to Rocketlab et SpaceX posts I saw passing by in several subs.
Recently, I read a summary of Chris Hohn's letter to TCI holders. He is an investor I enjoy following, as he puts a lot of discipline into finding quality companies beyond hype.
One point he made was that he was bullish on the Aerospace sector (he holds quite a bit of GE Aerospace). In short, he explained that it remains one of the few areas with room to run and where China does not dominate. He pointed at Airbus as being particularly compelling.
So I got influenced to maybe give these sectors a bit more thought.
I selected a few companies that I found interesting because they seemed to have already a strong foothold, very specialised expertise, yet diversified enough (and not too directly exposed to weaponry)
My short selection are **Transdigm, Heico, GE Aerospace, Rolls-Royce and Howmet Aerospace.**
I dug a bit more into **Transdigm** (I also did Heico but many months ago), and I must say that they have a compelling business and that the valuation is not crazy.
The main point from my quick read on TransDigm's speciality is to be Highly engineered, mostly proprietary aircraft components with a roughly 50-year product life. About 90% of sales are proprietary, and about 55% are aftermarket.
*Tailwind* (already seeing it today): Fleet ageing and growth, Boeing and Airbus ramps, defense spending and new program wins.
*Headwinds*: Right-to-repair, M&A scrutiny, fuel-driven traffic cuts and higher rates.
**Valuation**: At an 8% WACC, $1,089 (price at closing hour) requires about 4.9% revenue growth for ten years with a 54% As-Defined margin and 3% perpetual growth.
In short (could provide full valuation method), my base case valuation to aim earning around 12% a year turns around 1100$ a share - precisely where we are at. Bear case would be more in the 700$ range.
It is not quite value territory, but I always thought they were all crazy overvalued an turns out not to be the case. I put a price alert under 975$ a share.
So i am curious: what do you think of that sector? do you follow it? Do you have a favourite (from my shortlist or others?)