Shares of TransDigm (TDG) are slipping after Andrew Left's Citron Research published a report claiming the aircraft components supplier "stands out when it comes to egregious price increases foisted on government." Afterward, Credit Suisse analyst Robert Spingarn told investors he disagrees with Citron's negative view, noting he would be a buyer of the shares on the weakness.

'EGREGIOUS' PRICE INCREASES: In a report published on its website titled "Could TransDigm be the Valeant of the Aerospace Industry?," Andrew Left's Citron Research argued that while Boeing (BA) and Lockheed Martin (LMT) have been the target of President Donald Trump, "everyone in the aerospace industry knows that one company stands out when it comes to egregious price increases foisted on the government: TransDigm." Moreover, the research firm said TransDigm's business is to aerospace as Valeant (VRX) was to the pharmaceutical industry, with the former acquiring airplane parts companies, firing employees, and "egregiously" raising prices. The company's largest customer is the Department of Defense, followed by Boeing and Airbus (EADSY), the short-selling firm noted. While pointing out that the government "has already been down this road, scrutinizing the price gouging" perpetrated by TransDigm, Citron Research highlighted in its report the company's "inherent business vulnerability" under an administration seeking to save money by creating better deals for the U.S. government. Additionally, the short-selling firm said TransDigm's profitability may be "severely impacted" by high-profile supply initiatives by Boeing and the emergence of Parts Manufacturing Authorization allowing for the approval and manufacturing of "generic" parts, which can be 40%-80% cheaper than the Original Equipment Manufacturer after-market parts. TransDigm will have difficulty finding larger acquisitions that it needs to materially impact revenue growth, Citron noted, adding that its product mix is "overly dependent" on older airplane platforms that are at risk of being retired.

BUY ON WEAKNESS: In a research note commenting on Citron's report, Credit Suisse's Spingarn told investors that he is a buyer of TransDigm and would take advantage of the lower entry point. The analyst pointed out that the comparison with Valeant is nothing new, and TransDigm charges prices that the market seems willing enough to bear or it would have changed its business model long ago. While Spingarn acknowledged that he sees why such a report was written, he tends not to agree with it. Even if the government were to pursue lower prices from TransDigm, it would be a lengthy process, he said as he reiterated an Outperform rating on the shares with a $297 price target. "Trump Effect" is The Fly's recurring series of exclusive stories that highlight stocks that are being impacted, or are predicted to be impacted, by the comments, actions and policies of President-elect Trump and his administration.