Broker snap: Deutsche Bank downgrades Meggitt on 'insufficient upside'

5th Jul 2013 10:52

Deutsche Bank has cut its recommendation for aerospace and defence engineering group Meggitt from 'buy' to 'hold' ahead of its first-half results next month, saying it sees 'insufficient upside' from current prices.The broker forecasts "reasonably good progress" in the first half with sales expected to rise 4.0% and earnings per share up 9.0% year-on-year.Deutsche Bank expects full-year guidance to be maintained, though key to the delivery of this will be the hoped-for improvement in aftermarket in the second half. After negative growth in the first quarter and a slight improvement in the second (according to the broker's estimates), it estimates that a recovery to 6-9% aftermarket growth in the second half is needed to meet full-year targets."Reflecting the recent re-rating of defence peers and ongoing optimism around the commercial aerospace cycle, we have raised our sum-of-part derived target price from 495p to 525p," the broker said. "Despite this increase and the appeal we still see in Meggitt's business model and management's track record, there is now insufficient upside remaining to merit a 'buy', hence we downgrade to 'hold'."After a slight fall earlier on, the stock was trading 0.27% higher at 551.5p on Friday.BC