Goldman Sachs’ Best Hedge Fund Stock Picks: Top 20 Stocks

18. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Investors in Q2 2024: 86

GS’ Number Of Funds: 15

TransDigm Group Incorporated (NYSE:TDG) is a sizeable aerospace parts supplier in the US. It sells pumps, valves, actuators, and other components that are used in the aircraft industry. Given the ‘turbulence’ in the commercial aircraft sector in 2024, TransDigm Group Incorporated (NYSE:TDG) can capitalize on a sizeable potential opportunity. This comes in the form of a higher demand for aircraft components, as the US’ largest commercial aircraft manufacturer Boeing suffers from delayed deliveries due to greater FAA oversight on its manufacturing operations. This means that firms like TransDigm Group Incorporated (NYSE:TDG) will witness greater demand from aftermarket components as airlines adjust their inventory to adjust to the delayed deliveries. At the same time, TransDigm Group Incorporated (NYSE:TDG) has an unbelievable $19.3 billion of debt on its balance sheet, which is just a couple of million shy of its $19.9 billion in total assets. This places the firm in a precarious situation, that constrains its ability to grow.

TransDigm Group Incorporated (NYSE:TDG)’s management shared key details for its debt profile during the Q3 2024 earnings call:

“We continue to be comfortable operating in the 5 to 7x net debt-to-EBITDA ratio range.

And while we are currently sitting slightly below the low end of this range, our go-forward strategy, capital deployment has not changed, and we continue to seek the best opportunities for providing value to our shareholders through our leverage strategy. Our EBITDA to interest expense coverage ratio ended the quarter at 3.5x, which provides us with comfortable cushion right against that target range of 2 to 3x. We continue to closely monitor our debt stacks and repriced approximately $3.6 billion of our term loan debt to a more favorable rate, SOFR plus 2.5. Our capital allocation strategy is always to both proactively and prudently manage our debt maturities. Our nearest term maturity is November 2027, which gives us plenty of protection, at least in the short term.

In addition, approximately 75% of our $22 billion gross debt balance is fixed through fiscal 2027. This is achieved through a combination of fixed rate notes, interest rate caps swaps and collars. This continues to provide us adequate cushion against any rising rates, at least in the immediate term.”