RBC Capital Markets slashes Meggitt price target on profit warning

RBC Capital Markets slashed its price target on Meggitt to 420p from 580p following the company’s profit warning.

The bank, which kept its ‘outperform’ rating on the stock, noted that the warning was due to an abrupt slowdown in both the aerospace and defence after-markets and said it expects this to continue into the fourth quarter.

“Just when it seemed that Meggitt was getting it together, and reporting results similar to other aerospace suppliers, we lurch back into a sub-par performance,” said RBC. “If it were not for the typical UK market freak-out sell-off today, we would be looking to downgrade.”

However, with the stock down around 20%, a 2016 price-to-earnings ratio of 11.5x and a dividend yield of 3%, the bank said it was reluctant to capitulate here.

“Perhaps chairman, Sir Nigel Rudd, has some tricks up his sleeve,” it said.

RBC cut its 2015 earnings per share estimate to 30p from 35p and its 2016 forecast to 33p from 38p.