LONDON -- I'm window shopping for shares again, and there are plenty of goodies for sale. Should I pop Meggitt (LSE:MGGT) into my basket?

Defence, aerospace and energy
The defense industry isn't as buoyant as it was, thanks to US military spending cuts. Component maker Meggitt operates in the civil aerospace and energy industries as well, but they can also be volatile. Yet profits have held firm and its share price has been on a roll in recent months. Should I buy it?

In its recent (rather brief) first-quarter statement, Meggitt chairman Sir Colin Terry said the engineering group had posted "good growth in 2012" despite a "slowdown in the civil aftermarket and uncertainty around defence budgets worldwide". Revenues rose 10% in the year, with the energy business growing an impressive 45%. Underlying profit before tax grew 12% and underlying earnings per share (EPS) growth was 13%. The full-year dividend was hiked 12%, a demonstration of management confidence.

Yet the market was underwhelmed by Terry's admission that revenues "grew modestly" in the first quarter, and his forecast of mid-single digit revenue growth throughout the year. On the plus side, that should speed up in the second half of the year, provided the civil aftermarket picks up as anticipated, boosting revenues from overhauling jets and engines. Terry said Meggitt should still keep generating plenty of cash, on top of the £180m it pumped out in 2012. Financially, it's in a strong position.

Top gun?
At £5.10, Meggitt is trading close to its 52-week high of £5.20, way above year-low of £3.64. That's down to a share price surge in the past six months, when it rose nearly 40%, against just 15% for the FTSE 100. So it isn't as cheap as it was, trading at 13.8 times earnings. Yield is a lowly 2.4%, against the FTSE 100 average of 3.2%. On the plus side, it is covered a generous 3.1 times, which offers scope for further double-digit dividend hikes in future.

Can the growth continue? Forecast EPS is just 3% this year, although it should climb to 10% in 2014. A PEG ratio of 1 suggest possibilities, although nothing spectacular. Defence spending is likely to remain under pressure, although Meggitt gets roughly 44% of its earnings from the civil aviation market, where demand is still fairly robust. Investec has just retained its 'buy' recommendation but its £5.20 target price doesn't inspire. Meggitt looks a solid, long-term buy, but I don't expect it to go great guns.

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