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Meggitt flies higher as Goldman tips it to beat forecasts this year

The heavyweight bank packs a punch with the markets when it makes a decision one way or another on a company
fighter jets
Goldman likes Meggitt’s exposure to the growing US defence market

Meggitt PLC (LON:MGGT) was one of the top risers on the FTSE 250 after heavyweight investment bank Goldman Sachs upped its recommendation for the aerospace and defence engineer to ‘buy’ from ‘neutral’.

Alongside the rating upgrade, the Goldman analysts also hiked their price target by 12% to 662p, from 592p previously.

In a research report, the US bank said Meggitt is “well-positioned” to better market expectations over the next few years.

READ: Meggitt strikes another deal at Paris Air Show

“With 80% of revenues originating from the Global Aerospace and US Defence markets, we believe Meggitt is one of the better positioned stocks in our sector to deliver profitable growth through the medium term,” said Goldman in the note to clients.

“In addition, we believe growth expectations for this year are too low: company-compiled consensus expects 4% revenue growth, we forecast 9%.”

The US market is a key one for defence contractors, and President Trump and his team have upped spending in this area by 13% over the last two years, which should bode well for Meggitt.

“Outlays (i.e. actual cash spending) usually lag budget hikes by 12-18 months and are currently up 26% year-to-date,” said Goldman.

“We expect Meggitt will benefit from an uptick in 2019 and beyond, and we model 8% organic revenue growth in defence this year vs. guidance for 3%-5%.”

As for the impact of Boeing cutting production of its 737MAX planes, the number crunchers acknowledge that “poses downside risks” to growth forecasts in 2019, although it should wash out as and when deliveries resume.

Meggitt shares were up 2.2% to 540p to 538.4p on Thursday afternoon.

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