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North America Equity Research
01 April 2013
Aerospace and Defense
Balance of Power - April 2013
Aerospace & Defense
Joseph B. Nadol III
AC
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
J.P. Morgan Securities LLC
Seth M. Seifman, CFA
(1-212) 622-5597
seth.m.seifman@jpmorgan.com
J.P. Morgan Securities LLC
Christopher Sands
(1-212) 622-9224
christopher.sands@jpmorgan.com
J.P. Morgan Securities LLC
Shailendra K Jain
(91-22) 6157-3325
shailendra.k.jain@jpmorgan.com
J.P. Morgan India Private Limited
See page 8 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
Bloomberg JPMA NADOL<GO>
We are updating the allocation of points in our Balance of Power short-term
outlook. We summarize our thoughts below:
Boeing remains our top large cap pick. The stock outperformed the market by 4%
in Q1, including a strong March, yet we see further upside. The stock still trades at
only 11.8x our pension-adjusted EPS estimate for 2014, or less than one turn above
NOC, which derives most of its earnings from US defense, and we still have not
factored much of the sequester into our estimates. The FAA seems likely to certify
Boeings 787 battery fix this month, setting the stage for the resumption of revenue
service and deliveries. The company will report Q1 on April 24 and while cash flow
should be weak due to the lack of 787 deliveries and sequestration could pressure
defense estimates, we anticipate little change to our outlook for the commercial
aircraft cycle to remain on the upswing and for cash flow to rise significantly over
the next 1-2 years.
Defense regained some ground in March, but April could be more challenging.
Following a year in which large cap defense returned 17.5% and outperformed the
S&P 500 by 150 bps, the group has underperformed by ~650 bps YTD. However,
the underperformance in the first two months of the year was a more significant
~950 bps before a modest rally last month. We attribute last month's performance in
part to short covering following the onset of sequestration and a bit of catch-up in a
rising market. President Obama has also been reaching out to Republicans and has
reportedly been offering entitlement reform in return for tax increases. It is difficult
to be optimistic about the likelihood of a bipartisan agreement given the rancor of
the past few years, but such an agreement would likely be a big positive for defense
and we could envision some investors taking a shot that these efforts might succeed.
However, we believe that the defense stocks could give some of last month's
performance back this month since consensus expectations are likely to decline in
conjunction with Q1 earnings as companies revise their guidance to reflect
sequestration. At an average of 10.5x 2014 PAEPS, defense valuations are at the
high end of their range of the last 4-5 years.
Aftermarket progress should come slowly. We expect aftermarket sales to grow
modestly y/y following a Q4 in which sales were flat on average for a group of US
and European companies we track. We are modeling gradually accelerating growth
through 2013, but this recovery will likely be less powerful than in the past, in part
because airlines are using more new deliveries to replace older planes, a condition
that could persist as long as fuel prices are high, interest rates are low, and global
economic growth is modest. Among the stocks, Pratt spares are a key to aftermarket
profits at UTX, and a tough comp should drive a Q1 decline vs annual guidance for
mid single digit growth although we also believe the market anticipates this and
we think UTX overall looks fine heading into the quarter. We estimate that TDGs
aftermarket sales have been flattish organically the past two quarters, and a weak
fiscal Q2 is a risk given the contribution of high incremental margins on aftermarket
sales to earnings growth. COL expects double digit aftermarket growth this FY,
aided by mandates, and there should be a pickup in Q2 following the 6% decline in
Q1 on a tough comp. We see slow but improving aftermarket growth at BEAV, for
which widebody deliveries and SFE growth remain the key drivers.
2
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
Weak business jet fundamentals could create headwinds for TXT and GD
this month. We expect meaningful growth from the business jet operations of
TXT and GD in the coming years TXT due to a rebound in demand and GD
from the ramp up of the G650 but market fundamentals are still weak and we
expect commentary on Q1 earnings releases this month to reflect this. We
believe demand has been rough to start the year. In addition, although the data
is a few weeks away from being complete, Q1 deliveries for Cessna and
Gulfstream appear to be running below our forecasts. Beyond business jets, we
anticipate that both TXT and GD will revise their defense guidance to reflect
sequestration, and we rank TXT and GD toward the bottom of our large cap
pecking order this month.
WAIR risk/reward still looks attractive. We expect WAIR to report earnings
in late April/early May. Fiscal Q2 should be solidly better than Q1 and this
could drive outperformance since past earnings disappointments should
dampen expectations. We estimate that organic sales growth fell to ~2% last
quarter, but even flat sales sequentiallywhich we would view as a
disappointmentwould result in an improvement in the organic growth rate to
7-8% due to a much easier comp. In addition, we expect margins to expand off
Q1 driven by a better mix and leverage on SG&A. We believe that some are
looking for margins to miss, and they have been under pressure, but we expect
earnings to at least meet the guidance range this year even if margins remain
weak due to the solid prospects for top line growth, particularly as the company
further penetrates several large customers. Owning WAIR into the quarter does
carry risk given the difficulties it has had on earnings days in the past, but the
stock trades at only 10.6x our CY14 GAAP EPS estimate, which should
provide some downside protection.
M&A still looks likely for TDG soon. We are keeping TDG in our second
large cap slot due to the potential for the announcement of a large acquisition
that would also likely be highly accretive. M&A is a key component of
TransDigms business plan and it has been over a year since management
closed a sizable deal. The company has the capacity for a large acquisition, and
recent covenant changes as part of a major refinancing give management more
flexibility in several regards, including regarding divestitures from acquired
companies. We would expect the stock to react well to the announcement of a
transaction, though we have our concerns about the longer-term sustainability
of the multiple as the company gets bigger and M&A-driven growth becomes
harder to generate. The other potential catalyst for TDG in the coming weeks is
earnings, which we expect the first or second week of May. In the absence of a
deal, we would be somewhat cautious into earnings. As noted above, while we
expect some improvement in aftermarket growth, it should remain less than
robust and the sequester could dampen the outlook for defense aftermarket
sales. Given the stocks premium valuation18.8x CY14 GAAP EPS vs just
over 11x for our groupa quarter that does not drive estimates higher could
result in underperformance for the stock.
FY14 DoD budget request expected this month. After a two-month delay,
President Obama is expected to submit his FY14 budget request to Congress on
or about Apr 8. However, the actual FY14 budget will likely be materially
different than this months request. For starters, all indications suggest that next
weeks request will ignore the impact of sequestration, which means the
funding levels in the request will be well in excess of the caps mandated by
sequestration and therefore subject to reduction. Furthermore, the FY14 request
is expected to reflect the DoD strategy unveiled last year, but that strategy is
likely to change as the DoD is currently undertaking another review under new
Secretary Hagel to assess its strategy in light of the new budget environment.
That review is due in late May and could also offer the first insights into
3
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
changes in procurement plans for major weapons systems as a result of
sequestration.
Please see the body of our note for all of our rankings, stock specific
comments, and an aerospace/defense catalyst calendar.
4
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
Balance of Power Explained
We have divided our coverage universe of 23 stocks into two categories. The large
cap group contains 12 stocks with market caps generally over $6 billion, and the
small/mid cap group contains 11 stocks generally under $6 billion. The total number
of points per group is 100 times the number of stocks. Our intent is to communicate
nuance, such as level of conviction and the potential for near-term catalysts.
Table 1: J.P. Morgan Aerospace/Defense Balance of Power Rankings (Prices as of March 28, 2013)
Company Symbol Rating Points Change Price Notes
Large Cap
Boeing BA OW 150 $85.85 Valuation remains attractive; FAA could certify 787 battery fix
TransDigm TDG N 140 $152.92 See potential for M&A near term
Precision Castparts PCP OW 130 $189.62 Underperformed by 9% YTD
United Technologies UTX OW 115 $93.43 Q1 earnings should not disappoint
Rockwell Collins COL OW 105 +5 $63.12 Expect in line quarter with relatively low risk of estimates falling
Raytheon RTN N 100 +5 $58.79 Looks better positioned than most defense peers into the quarter
Lockheed Martin LMT N 95 -10 $96.52 Relative to peers, we see less risk to 2013 guidance due to sequestration
Bombardier BBD/B CT N 85 +20 C$ 3.96 Underperformed by 6%; could see more progress toward CSeries first flight
Northrop Grumman NOC UW 80 $70.15 Valuation continues to look rich
Textron TXT N 75 +15 $29.81 Weak Cessna demand and defense fundamentals could make for a tough quarter
General Dynamics GD OW 65 -20 $70.51 Q1 could be rocky on both the defense and business jet fronts
L-3 Communications LLL N 60 -15 $80.92
Shorter-cycle defense businesses could drive greater downward EPS revision than is
likely for large cap peers
Subtotal 1,200
Mid/Small Cap
Wesco Aircraft WAIR OW 155 $14.72 Expect solid quarter; positive commentary on top line momentum
Alliant Techsystems ATK OW 135 $72.43 Quarter could be strong on commercial ammo sales
B/E Aerospace BEAV OW 125 +10 $60.28 Expect solid quarter; potential catalysts include lav retrofit order, M&A
Spirit AeroSystems SPR N 115 -10 $18.99 New CEO should be well received but development program overhang remains
Comtech CMTL OW 105 +10 $24.28 Valuation remains attractive
Huntington Ingalls HII N 95 -10 $53.33 We see few catalysts this month
Embraer ERJ UW 90 +10 $35.67
Stock looks pricy, but next direction for it likely to be driven by the outcome of a
regional jet competition against Bombardier
SAIC SAI N 80 +20 $13.55 Dividend should provide near-term support
Exelis XLS N 75 -15 $10.89 Could see disappointing results from short-cycle businesses this quarter
Harris Corporation HRS UW 65 $46.34 We expect the quarter to reveal pressure across the business
CACI CACI N 60 -15 $57.87 We have low expectations into the quarter given recent peer results
Subtotal 1,100
Total 2,300
Source: Bloomberg, J.P. Morgan.
5
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
Figure 1: Price Performance: 3/11/2013 - 3/28/2013
Source: Bloomberg.
Note: The performance above covers the time period since the release of our last Balance of Power note.
CMTL
BBD
TXT
XLS
PCP
UTX
HRS
GD
ERJ
COL
JPM Aero/Def
Universe
SPR
LLL
RTN
HII
BA
TDG
NOC
BEAV
LMT
WAIR
CACI
ATK
SAI
-8% -4% 0% 4% 8% 12%
6
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
Table 2: J.P. Morgan Aerospace/Defense Catalyst Calendar
Current BoP
8-Apr FY14 Budget Request
9-11 Apr Aircraft Interiors Expo
17-Apr TXT Q1
19-Apr COL Q2
23-Apr LMT Q1 (est)
23-Apr NOC Q1 (est)
23-Apr BEAV Q1 (est)
24-Apr BA Q1
24-Apr GD Q1
24-Apr UTX Q1 (est)
25-Apr RTN Q1 (est)
25-Apr LLL Q1 (est)
30-Apr ERJ Q1 (est)
30-Apr WAIR Q2 (est)
30-Apr HRS Q3
2-May SPR Q1 (est)
2-May ATK Q4 (est)
2-May CACI Q3 (est)
3-May XLS Q1 (est)
Next BoP
7-May TDG Q2 (est)
9-May BBD/B Q1
9-May HII Q1 (est)
16-May PCP Q4 (est)
21-22 May Boeing Investor Event
21-23 May EBACE
Source: J.P. Morgan.
7
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
J.P. Morgan Aerospace/Defense Comp Sheet (prices as of March 28, 2013)
Valuation Metrics
Market P/E P/PAE EV/EBITDA EV/EBITDAP EV/Sales P/FCF Price Implied
Company Price Symbol Rating Cap(bln) 2012E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E Target Upside
Alliant Techsystems
ab
$72.47 ATK OW 2.4 9.1x 10.2x 10.5x 9.2x 9.5x 5.7x 5.6x 5.3x 5.2x 0.7x 0.7x 11.4x 9.1x $76.00 5%
B/E Aerospace $60.28 BEAV OW 6.2 21.3x 17.2x 13.7x 17.2x 13.7x 10.6x 8.5x 10.6x 8.5x 2.2x 1.9x NM 15.4x $57.00 -5%
Boeing $85.83 BA OW 65.6 16.8x 15.5x 14.4x 12.9x 11.8x 7.4x 6.5x 7.4x 6.5x 0.7x 0.6x 13.4x 8.4x $94.00 10%
Bombardier
d
$3.96 BBD/BCT N 6.9 12.0x 13.6x 9.7x 13.6x 9.7x 8.2x 6.6x 8.2x 6.6x 0.6x 0.5x NM NM NA NA
CACI
b
$57.87 CACI N 1.5 9.3x 9.1x 9.1x 9.1x 9.1x 5.9x 5.6x 5.9x 5.6x 0.5x 0.5x 6.5x 7.5x $60.00 4%
Comtech
c
$24.28 CMTL OW 0.4 20.8x 27.2x 14.8x NM 14.8x 5.0x 3.9x 5.0x 3.9x 0.8x 0.7x 18.3x 10.8x $29.00 19%
Embraer $35.67 ERJ UW 6.5 17.6x 12.7x 13.0x 12.7x 13.0x 6.9x 6.8x 6.9x 6.8x 1.0x 1.0x NM NM $32.00 -10%
Exelis
a
$10.88 XLS N 2.1 5.9x 7.4x 7.1x 7.4x 8.0x 4.0x 3.6x 4.0x 3.9x 0.5x 0.5x 8.9x 7.8x $11.00 1%
General Dynamics $70.51 GD OW 25.0 NM 10.5x 10.7x 10.5x 10.7x 6.0x 5.9x 6.0x 5.9x 0.8x 0.8x 10.5x 10.7x $73.00 4%
Harris Corporation
b
$46.34 HRS UW 5.2 8.9x 9.5x 10.3x 9.5x 10.3x 5.5x 5.7x 5.5x 5.7x 1.3x 1.2x 8.8x 9.0x $45.00 -3%
Huntington Ingalls
a
$53.34 HII N 2.7 18.3x 13.5x 9.4x 10.5x 9.1x 5.7x 4.3x 5.0x 4.3x 0.5x 0.5x 17.5x 7.0x $50.00 -6%
L-3 Communications $80.92 LLL N 7.9 10.1x 9.9x 10.1x 9.9x 10.1x 7.0x 6.9x 7.0x 6.9x 0.8x 0.8x 7.2x 7.5x $80.00 -1%
Lockheed Martin
a
$96.52 LMT N 31.7 11.5x 11.0x 10.9x 9.8x 10.5x 6.6x 6.4x 6.1x 6.2x 0.8x 0.8x 9.0x 10.5x $92.00 -5%
Northrop Grumman
a
$70.16 NOC UW 17.8 9.0x 10.1x 9.5x 10.6x 11.0x 5.4x 5.2x 5.6x 5.8x 0.7x 0.7x 11.9x 8.7x $64.00 -9%
Precision Castparts
b
$189.73 PCP OW 27.8 20.5x 16.2x 14.2x 16.2x 14.2x 10.6x 9.0x 10.6x 9.0x 3.0x 2.7x 18.7x 16.6x $195.00 3%
Raytheon
a
$58.79 RTN N 19.6 10.4x 11.2x 11.0x 10.1x 10.3x 6.4x 6.1x 5.8x 5.8x 0.8x 0.8x 9.1x 10.1x $57.00 -3%
Rockwell Collins
b
$63.12 COL OW 9.1 14.9x 13.1x 12.0x 13.1x 12.0x 8.7x 7.6x 8.7x 7.6x 2.0x 1.9x NM 12.8x $66.00 5%
SAIC
c
$13.55 SAI N 4.5 8.8x 11.5x 11.1x 11.5x 11.1x 6.4x 6.1x 6.4x 6.1x 0.5x 0.5x 9.0x 7.9x $12.00 -11%
Spirit AeroSystems $19.00 SPR N 2.7 NM 8.6x 6.7x 8.6x 6.7x 5.9x 4.9x 5.9x 4.9x 0.7x 0.6x NM 13.2x $22.00 16%
Textron $29.80 TXT N 8.8 15.1x 13.2x 11.5x 13.2x 11.5x 7.8x 6.6x 7.8x 6.6x 0.9x 0.8x NM 14.1x $30.00 1%
TransDigm
b
$152.92 TDG N 8.3 27.9x 22.0x 18.8x NM 18.8x 13.4x 11.8x 13.4x 11.8x 6.2x 5.6x 17.0x 16.8x $130.00 -15%
United Technologies $93.42 UTX OW 84.7 17.5x 15.1x 13.1x 15.1x 13.1x 9.0x 7.7x 9.0x 7.7x 1.6x 1.4x 13.2x 11.5x $98.00 5%
Wesco Aircraft Holdings
c
$14.73 WAIR OW 1.4 16.1x 12.3x 10.6x 12.3x 10.6x 9.2x 8.1x 9.2x 8.1x 2.1x 1.9x 12.5x 14.9x $17.00 15%
Average/Total: $348.7 14.4x 13.1x 11.4x 11.6x 11.3x 7.3x 6.5x 7.2x 6.5x 1.3x 1.2x 11.9x 11.0x
S&P 500 (Consensus) $1,568.49 SPX 14.2x 12.7x 11.5x
A & D discount/(premium) -1% -3% 1%
Other Financial Metrics
EPS PAEPS FCF(per share) Sales (bln) Operating Margin Dividend Dividend / Market Net Debt /
Company 2012E 2013E 2014E 2013E 2014E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E Yield '13 PAEPS Cap Net Debt EV '13 EBITDAP
Alliant Techsystems
ab
$7.96 $7.11 $6.89 $7.91 $7.64 $6.37 $7.92 4.5 4.1 3.9 10.2% 9.8% 9.7% 1.4% 13.1% 2.4 0.7 3.1 1.3x
B/E Aerospace 2.83 3.50 4.40 3.50 4.40 2.50 3.91 3.1 3.4 3.9 17.5% 18.4% 19.5% 0.0% 0.0% 6.2 1.6 7.8 2.2x
Boeing 5.11 5.53 5.94 6.65 7.25 6.41 10.23 81.7 85.3 92.7 7.7% 7.5% 7.3% 2.3% 29.2% 65.6 (3.1) 62.4 (0.4x)
Bombardier
d
0.33 0.29 0.40 0.29 0.40 (0.43) (0.16) 16.8 18.2 20.8 4.1% 5.1% 5.6% 2.5% 34.2% 6.9 2.5 9.4 1.9x
CACI
b
6.22 6.37 6.38 6.37 6.38 8.85 7.75 3.7 3.7 3.6 7.6% 7.7% 7.7% 0.0% 0.0% 1.5 0.7 2.2 2.0x
Comtech
c
1.17 0.89 1.64 0.89 1.64 1.33 2.24 0.4 0.3 0.3 11.7% 10.6% 13.7% 4.5% 123.3% 0.4 (0.2) 0.3 (3.1x)
Embraer 2.03 2.80 2.75 2.80 2.75 1.12 1.46 6.2 6.3 6.6 10.1% 10.5% 9.7% 2.2% 28.6% 6.5 (0.1) 6.4 (0.1x)
Exelis
a
1.85 1.47 1.53 1.47 1.37 1.22 1.40 5.5 4.9 4.6 10.2% 9.3% 10.4% 3.8% 28.1% 2.1 0.4 2.4 0.6x
General Dynamics (0.93) 6.70 6.60 6.70 6.60 6.68 6.58 31.5 31.9 30.5 2.6% 11.2% 11.4% 3.2% 33.4% 25.0 0.6 25.7 0.1x
Harris Corporation
b
5.23 4.90 4.50 4.90 4.50 5.26 5.13 5.4 5.2 5.0 17.4% 17.4% 16.4% 3.2% 30.2% 5.2 1.6 6.8 1.4x
Huntington Ingalls
a
2.91 3.95 5.70 5.06 5.86 3.05 7.62 6.7 6.7 6.8 5.3% 6.2% 8.2% 0.7% 7.9% 2.7 0.8 3.4 1.1x
L-3 Communications 8.00 8.15 8.00 8.15 8.00 11.26 10.78 13.1 12.6 12.2 10.3% 10.0% 9.9% 2.5% 24.5% 7.9 3.3 11.2 2.2x
Lockheed Martin
a
8.36 8.80 8.85 9.88 9.15 10.77 9.15 47.2 44.7 43.6 9.3% 9.6% 10.0% 4.8% 46.5% 31.7 4.4 36.1 0.8x
Northrop Grumman
a
7.81 6.95 7.35 6.62 6.37 5.89 8.09 25.2 23.8 22.8 12.4% 11.2% 11.7% 3.1% 33.2% 17.8 0.1 17.8 0.0x
Precision Castparts
b
9.26 11.69 13.32 11.69 13.32 10.16 11.40 7.9 10.1 10.9 25.8% 26.0% 27.3% 0.1% 1.0% 27.8 3.3 31.1 1.2x
Raytheon
a
5.65 5.25 5.35 5.82 5.68 6.43 5.81 24.4 23.6 22.9 12.2% 11.3% 11.6% 3.7% 37.8% 19.6 0.7 20.3 0.2x
Rockwell Collins
b
4.23 4.82 5.25 4.82 5.25 3.02 4.92 4.7 4.7 4.9 18.7% 19.5% 20.1% 1.9% 24.9% 9.1 0.8 9.9 0.7x
SAIC
c
1.54 1.18 1.22 1.18 1.22 1.50 1.72 11.2 10.2 9.5 6.6% 6.7% 7.3% 3.5% 40.8% 4.5 0.6 5.1 0.7x
Spirit AeroSystems 0.24 2.20 2.85 2.20 2.85 (0.36) 1.44 5.4 6.0 6.9 -1.0% 9.6% 9.7% 0.0% 0.0% 2.7 1.6 4.3 2.2x
Textron 1.97 2.25 2.60 2.25 2.60 1.17 2.12 12.2 12.6 13.4 8.0% 8.0% 8.5% 0.3% 3.5% 8.8 2.6 11.4 1.9x
TransDigm
b
5.48 6.94 8.14 6.94 8.14 9.02 9.10 1.8 1.9 2.0 40.9% 43.1% 44.4% 0.0% 0.0% 8.3 3.3 11.6 3.7x
United Technologies 5.33 6.20 7.15 6.20 7.15 7.08 8.14 57.7 65.1 69.1 13.3% 14.4% 15.4% 2.3% 34.5% 84.7 18.4 103.1 1.6x
Wesco Aircraft Holdings
c
0.91 1.19 1.39 1.19 1.39 1.18 0.99 0.8 0.9 1.0 19.3% 21.3% 21.8% 0.0% 0.0% 1.4 0.6 2.0 2.7x
Average/Total: 377.2 386.5 398.0 12.2% 13.2% 13.8% 2.0% 25.0% 1.0x
S&P 500 110.53 123.45 136.70
Note: J.P. Morgan ratings: OW = Overweight; N = Neutral; UW = Underweight; NR = Not rated. Price targets are for Dec 31 '13. a. PAEPS excludes net pension expense for BA (estimated) LMT, NOC, RTN, ATK, XLS and HII.
b. ATK, CACI, COL, HRS, PCP, TDG, and WAIR estimates are calendar year; c. CMTL and SAI years are from Feb. to Jan. Estimates are in U.S. Dollars; d. BBD stock price converted from Canadian Dollars for multiple calculations based on current exchange rat es.
Source: Bloomberg, Company reports, and J.P. Morgan estimates.
8
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
Companies Recommended in This Report (all prices in this report as of market close on 28 March 2013)
Boeing Company (BA/$85.85/Overweight), TransDigm Group Inc (TDG/$152.92/Neutral)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report.
Important Disclosures
Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer of
Boeing Company.
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Boeing Company,
TransDigm Group Inc.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Boeing Company.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Boeing Company, TransDigm Group
Inc.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Boeing Company, TransDigm Group Inc.
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Boeing
Company.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Boeing Company.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Boeing Company, TransDigm Group Inc.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or e-mailing
research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail
research.disclosure.inquiries@jpmorgan.com.
Date Rating Share Price
($)
Price Target
($)
28-Feb-07 N 87.26 --
01-Dec-08 N 39.88 46.00
08-Dec-08 N 39.53 42.00
12-Jan-09 N 43.74 44.00
02-Mar-09 N 29.51 36.00
19-Mar-09 N 33.19 34.00
04-May-09 N 42.18 40.00
16-Jul-09 N 42.05 37.00
08-Sep-09 N 49.50 41.00
24-Sep-09 N 52.37 50.00
22-Oct-09 N 51.07 47.00
11-Jan-10 N 60.87 56.00
28-Jan-10 N 61.93 62.00
29-Mar-10 N 72.59 80.00
07-Sep-10 N 64.64 89.00
20-Sep-10 N 63.72 82.00
21-Oct-10 N 71.50 80.00
0
30
60
90
120
150
180
Price($)
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Apr
11
Jan
12
Oct
12

Boeing Company (BA, BA US) Price Chart
N $44N $40N $50N $62 N $80 OW $89 OW $85
N $42 N $34 N $41N $56 N $82 OW $81 OW $80 OW $100
N N $46 N $36N $37 N $47 N $80 N $89 OW $83 OW $85 OW $85 OW $80 OW $94
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Feb 28, 2007 - Dec 01, 2008.
9
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
03-Jan-11 OW 66.40 83.00
20-May-11 OW 77.52 85.00
09-Aug-11 OW 62.34 81.00
07-Sep-11 OW 64.90 89.00
18-Oct-11 OW 63.47 85.00
27-Oct-11 OW 66.56 80.00
06-Jan-12 OW 73.98 85.00
16-Jul-12 OW 73.51 80.00
26-Jul-12 OW 74.91 100.00
31-Jan-13 OW 73.87 94.00
Date Rating Share Price
($)
Price Target
($)
15-Dec-10 OW 71.23 86.00
04-Apr-11 N 84.18 86.00
11-May-11 N 83.04 87.00
30-Jun-11 N 91.19 94.00
10-Aug-11 N 84.87 99.00
07-Sep-11 N 90.94 102.00
18-Nov-11 N 93.57 106.00
08-Feb-12 N 116.00 120.00
08-Aug-12 N 125.13 140.00
16-Nov-12 N 125.65 126.00
04-Feb-13 N 137.72 130.00
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Nadol, Joseph B: Alliant Techsystems Inc. (ATK), B/E Aerospace (BEAV), Boeing Company (BA), Bombardier
(BBDb.TO), CACI International Inc (CACI), Comtech Telecommunications (CMTL), Embraer SA (ERJ), Exelis Inc. (XLS), General
Dynamics Corp. (GD), Harris Corporation (HRS), Huntington Ingalls Industries (HII), L-3 Communications (LLL), Lockheed Martin
(LMT), Northrop Grumman (NOC), Precision Castparts (PCP), Raytheon (RTN), Rockwell Collins (COL), SAIC (SAI), Spirit
AeroSystems (SPR), Textron (TXT), TransDigm Group Inc (TDG), United Technologies (UTX), Wesco Aircraft Holdings, Inc. (WAIR)
0
45
90
135
180
225
270
Price($)
Nov
07
Aug
08
May
09
Feb
10
Nov
10
Aug
11
May
12
Feb
13

TransDigm Group Inc (TDG, TDG US) Price Chart
N $94 N $106
N $87N $102 N $130
OW $86N $86 N $99 N $120 N $140 N $126
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Dec 15, 2010.
10
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
J.P. Morgan Equity Research Ratings Distribution, as of March 30, 2013
Overweight
(buy)
Neutral
(hold)
Underweight
(sell)
J.P. Morgan Global Equity Research Coverage 43% 44% 13%
IB clients* 54% 47% 38%
JPMS Equity Research Coverage 42% 50% 9%
IB clients* 74% 64% 57%
*Percentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
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11
North America Equity Research
01 April 2013
Joseph B. Nadol III
(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
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