Aerospace cycles are tricky, as investors in stocks like Honeywell (NYSE:HON), Rockwell Collins (NYSE:COL), and Safran (OTCPK:SAFRY) can attest, but Meggitt (OTCPK:MEGGY) has had more challenges than most. Margins are on a four-year slide, and investors are rightly concerned as to whether a wave of fleet retirements will sap demand for lucrative spare parts and whether recent M&A transactions will generate acceptable returns on the capital invested.
I think Meggitt is growing through a transitional period, as new original equipment programs ramp up, but I believe the business can return to a more normal margin/FCF footing in the coming years. That said, the shares already seem to anticipate such a recovery and M&A is really the only driver I can see that would drive significantly better results in the near term.
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Meggitt Going Through A Transition, But The Valuation Seems To Anticipate The Recovery