TDG

TransDigm is one of the highest-quality industrials on the market, and the FY2025 numbers prove it: revenue $8.83B (+11.2%), net income $2.07B (+21.0%), diluted EPS $32.08 (+25.2%), with a 60.1% gross margin and a 47.2% operating margin that almost no parts manufacturer can match. The five-year history is a near-perfect compounding curve — revenue up from $4.80B (FY2021) to $8.83B and net income tripling from $680M to $2.07B — reflecting the proprietary, sole-source aftermarket parts model with pricing power and light capital needs (CapEx just $222M on $2.04B of operating cash flow). This is a genuine quality franchise, and the bolt-on M&A engine keeps feeding it (Servotronics, plus the $757M Simmonds deal closed October 2025, all funded from cash).

The balance sheet is where discipline is required. Stockholders' equity is NEGATIVE $9.69B and ROE of -21.4% is mathematically meaningless — these are not signs of distress but the signature of TransDigm's deliberate LBO-style capital structure. The MD&A is explicit: management 'vary[s] leverage both to optimize equity return and to pursue acquisitions.' In FY2025 they did ~$11B of debt financing and issued $5B of new senior notes/term loans (at 6.25%–6.75%) to fund a $90.00/share special dividend (~$5.2B paid in September). Total debt rose to ~$30B from ~$24.9B, cash fell 55% to $2.81B, and earnings-to-fixed-charges coverage sits at 2.7x — adequate but not generous against that debt load and the new higher coupons. TD Group is a holding company wholly dependent on subsidiary distributions, with covenants under its credit agreement and indentures governing what it can pay out — a structural fragility to respect, even if the legal-proceedings and risk disclosures flag nothing individually material.