Unlike most industrials, which got hammered early in the COVID-19 pandemic and have since largely recovered, the aerospace sector hasn't enjoyed the same sort of recovery, as investors remain worried about the uncertainties of a multiyear recovery path for air traffic and aircraft demand. Even relative to the beaten-down aerospace sector, Meggitt PLC (OTCPK:MEGGY) (MGGT.LN) has been hit hard, as investors fret over the company's reliance on programs like the 737 MAX as well as high-margin aftermarket sales for older aircraft.
I don't want to underplay the challenges that Meggitt is facing. It may well take four years or more to return to pre-COVID-19 product levels, and margins may not return to 2019 levels for five years or more, as the company absorbs lower-margin original equipment sales and loses more lucrative aftermarket business. Still, even with those negatives in place, I believe the shares undervalue the long-term value of the business, and this looks like a name for more patient investors to consider.
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Meggitt Looks Undervalued, But Fleet Retirements Will Pressure Margins
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