Broker Snap: Credit Suisse downgrades Meggitt to underperform

6th Dec 2011 17:13

Analysts at Credit Suisse have today cut their recommendation and price target on Meggitt, the global systems and components supplier for the aerospace industry. The broker holds that the company's strength in civil OE/energy is already largely priced-in, after a strong performance this year. Furthermore, Credit Suisse highlights that Meggitt's civil aftermarket revenues are largely geared to global airline capacity, and management's growth expectations next year are based on a 4.5% increase in available-seat-kilometres (ASKs). That assumption may not be met due to macroeconomic weakness. Also expected to have a negative impact on the company is, "the failure of the US 'Super Committee' to reach agreement on deficit reduction highlights continued uncertainty over the outlook for the US Federal Budget, and in particular defence spending, which we estimate is currently 30% above historic peak levels and 65% above troughs."Lastly, Credit Suisse adds that, "While we view civil OE revenues as an area of strong growth for Meggitt next year, we believe consensus is not fully reflecting the negative mix effect this may have on profitability, particularly against a soft aftermarket."Credit Suisse has downgraded shares of Meggitt to underperform (from outperform) and reduced its price target to 330p (from 410p).AB