How Meggitt PLC's (LON:MGGT) Earnings Growth Stacks Up Against The Industry

In this commentary, I will examine Meggitt PLC's (LON:MGGT) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the aerospace & defense industry performed. As an investor, I find it beneficial to assess MGGT’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.

See our latest analysis for Meggitt

How Did MGGT's Recent Performance Stack Up Against Its Past?

MGGT's trailing twelve-month earnings (from 31 December 2017) of UK£350.00m has more than doubled from UK£171.20m in the prior year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 3.05%, indicating the rate at which MGGT is growing has accelerated. What's enabled this growth? Let's take a look at if it is merely owing to industry tailwinds, or if Meggitt has seen some company-specific growth.

The rise in earnings seems to be propelled by a solid top-line increase outstripping its growth rate of expenses. Though this resulted in a margin contraction, it has made Meggitt more profitable. Eyeballing growth from a sector-level, the UK aerospace & defense industry has been growing its average earnings by double-digit 26.25% in the past year, . This is a turnaround from a volatile drop of -2.53% in the past couple of years. This growth is a median of profitable companies of 7 Aerospace & Defense companies in GB including Ultra Electronics Holdings, BAE Systems and QinetiQ Group. This suggests that, in the recent industry expansion, Meggitt is able to leverage this to its advantage.

In terms of returns from investment, Meggitt has not invested its equity funds well, leading to a 13.69% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.87% exceeds the GB Aerospace & Defense industry of 7.20%, indicating Meggitt has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Meggitt’s debt level, has increased over the past 3 years from 6.72% to 8.48%.

What does this mean?

Though Meggitt's past data is helpful, it is only one aspect of my investment thesis. While Meggitt has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I suggest you continue to research Meggitt to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for MGGT’s future growth? Take a look at our free research report of analyst consensus for MGGT’s outlook.
2. Financial Health: Is MGGT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.