Please ensure Javascript is enabled for purposes of website accessibility

Is Now the Time to Buy Meggitt?

By Rupert Hargreaves - Apr 16, 2013 at 3:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Should you buy Meggitt today?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Meggitt (MGGT 0.00%) (MEGG.F 2.09%) to determine whether you should consider buying the shares at 480 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:



3-Year EPS Growth

Projected P/E



3-Year Dividend Growth

Dividend Cover

Meggitt plc








The consensus analyst estimate for next year's earnings per share is 38.2 pence (11% growth) and dividend per share is 12.7 pence (8% growth).

Trading on a projected P/E of 12.3, Meggitt appears to be valued the same as its peers in the aerospace and defense sector, which are currently trading on an average P/E of around 12.5.

Meggitt's P/E and double-digit growth rate give a PEG ratio of around 1.1, which implies the share is fairly priced for the near-term earnings growth the firm is expected to produce.

At 2.5%, the dividend yield is slightly more than the sector average of 2.1%. In addition, Meggitt has a three-year compounded dividend growth rate of 28%, implying the yield will continue to stay above that of its peers.

Additionally, the dividend is around three times covered by earnings, giving Meggitt plenty room for further payout growth.

So, is now the time to buy Meggitt?
Meggitt is a world-leading engineering group that boasts an illustrious history of manufacturing components for the aerospace, defense and energy markets.

Meggitt's experience and heritage lead me to believe the company enjoys a significant edge over its competitors. Indeed, while the majority of the company's peers are struggling with the uncertain economic environment and falling government defense spending, Meggitt's earnings have continued to grow.

That said, Meggitt's management has predicted that spending cuts in the U.S. will have an effect on the company's revenue this year. However, the company predicts this impact will be limited and is only likely to reduce revenue by about 2% during 2013 and 2014.

Furthermore, 44% of Meggitt's revenue comes from the civil aviation market, where there is still a strong demand for planes and components. I believe growth in this sector should more than offset the reduction in defense-related revenues.

Overall, Meggitt's solid rate of growth should continue and the company currently has a reasonable valuation compared to its sector peers. So, I feel now looks to be a good time to buy Meggitt at 480 pence.

More FTSE opportunities
As well as Meggitt, I am also positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meggitt PLC Stock Quote
Meggitt PLC
$788.80 (0.00%) $0.00
Meggitt PLC Stock Quote
Meggitt PLC
$9.75 (2.09%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.