One of the Widest Moats in Aerospace Is On Sale

Chris Higgins: Transdigm manufactures products for electronic, fluid, power, and motion control onboard aircraft. It also supplies products used in aircraft cabin structures, lighting, and a host of other applications. If you've taken a commercial airline flight, you've been on aircraft with their products onboard.

The company has one of the widest moats of any aerospace company we cover thanks to sticky aftermarket sales that account for over 70% of its profits. Once the company is on an aircraft, it stays on it for decades. And due to stringent FAA certification requirements plus the high cost of failure onboard an aircraft, Transdigm consistently extracts premium pricing from aircraft manufacturers and airline customers.

This business model combined with aggressive acquisition activity has led to a 20% plus annual increase in revenues and profitability for the company and most importantly value creation for shareholders. While we do expect Transdigm's revenue and profit growth to slow from this blistering pace due to scale effects and the niche aerospace markets it serves, we think the recent sell-off in its shares provides investors looking for a wide-moat company an interesting entry point.