Financial Trading Blog

Stock of the day 23/02/2015 – Meggitt PLC



After one of its biggest rivals suffered with its latest results statement, the aerospace equipment specialist Meggitt will be hoping to avoid a similar fate when it announces its full year 2014 earnings release on Tuesday.


Rolls-Royce Holdings, Meggitt’s largest UK rival, saw an 8% fall in profits, the first it saw in a decade, following weak defence sales, among other issues. Meggitt’s sales are less reliant on defence, but will have the performance of its larger peer in mind when it reveals its results on Tuesday.

Meggitt Chart February 2015

After pretty big gains in 2013 fell off slightly towards the end of the year, Meggitt began 2014 at £5.19; the stock immediately set into decline, falling to £4.50 in March before stabilising at around £4.80 until June. The company then began to benefit from rumours claiming that Meggitt was going to be taken over by United Technologies Corp; these reports helped spur on the stock to its 2014 high price of £5.46 by mid-July. Yet the failure for these rumours to materialise into fact combined with its interim profit before tax falling by 20% set in motion a decline that culminated in its year-low price of £4.24 by mid-October. However since then the stock has been rejuvenated and despite a wobble in mid-December has gone on an impressive run of gains. It opened the New Year at £5.19, the same as in 2014, but continued to post gains unlike the first quarter of last year; the stock is now trading at £5.69.

Perhaps the most obvious reason for Meggitt’s rise and rise has been the sustained low prices of oil, and what this means for the commercial airlines. The cheaper oil is, the bigger airlines’ profits can be, therefore creating an upswing in sales of Meggitt’s aero-specific technologies. It helps that 48% of Meggitt’s total sales is comprised of civil aeroplane equipment, with the company lucratively supplying both Airbus and Boeing.

Meggitt is expected to improve its bottom line by 17%, with another 8% in 2016; following the losses it incurred in 2014, this will be a big boost to the company. However, whilst the oil/airline correlation should provide Meggitt with a boon, it failed to help Rolls-Royce Holdings. It may be because of this that analysts have given the stock a consensus rating of ‘hold’, alongside a conservative 12 month target price of £5.17, despite the strong bottom line predictions for the next 2 years.



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