Engineering company Meggitt plc (LSE: MGGT) has released a mixed update today. While trading remains in-line with its previous guidance, it now expects the current weakness to continue into 2016. This follows a profit warning in October thatsent the companys shares spiralling downwards, although theyre flat sofar today.
The major reason for Meggitts continued challenges is a very weak energy market thatis set to pull down the better performance of its other divisions. In fact, while Meggitt anticipates its civil and military unitsto post positive growth next year, overall growth including all divisions will be in the low single digits. And, while cost-cutting and the potential for efficiencies could help to offset the sales weakness itscurrently seeing, Meggitt appears to be in the middleof a very uncertain period.
So heres the good news. Thispresents an opportunity to buy a high quality company at a discounted price. Just look Meggitt now trades on a price to earnings (P/E) ratio of only12.8. This indicates that its shares are well worth buying nowand, with the companyupbeat aboutits ability to deliver organic growth ahead of the markets in which it operates, it could prove to be a sound investment.
Growth ahead
Similarly, BAE Systems plc (LSE: BA) also offers excellent value for money. It, of course, is also struggling to overcome a challenging marketplace, with BAE set to deliver a 1% fall in its bottom line this year. As with Meggitt, though, it remains a very high quality company thatnow trades on a P/E ratio of just 13.7. Looking ahead to next year, itsexpected to return to growth with a rise in net profit of 5% being pencilled in by the market.
As well as a low valuation, BAE also offers vast dividend growth potential. For example, its current level of shareholder payouts are covered 1.8 times by profit and this indicates that even if profit growth is rather sluggish, itcould still increase dividends at a rapid rate. This could helpsupport its share price during a difficult period especially with interest rates forecast to remain low over the coming years. And, with BAE yielding 4.1%, it offers excellent income potential right now.
Wait and see?
Meanwhile, Rolls-Royce Holding PLC (LSE: RR) is also finding trading particularly difficult at the moment and looking ahead, further profit warnings could be on the cards following its recent downgrade to guidance. This could further pressure the companys shares, especially with Rolls-Royce already expected to deliver a net profit fall of 20% in the current year and a further 43% next year.
Although theshare price has droppedby 30% since the turn of the year, the market does not yet appear to have fully priced in the disappointing outlook for the business. Rolls-Royce trades on a forward P/E ratio of 20.5 (which uses next years 43% lower earnings figure). This indicates that its share price could come under pressure and, while its new management team has excellent credentials and Rolls-Royce remains a top quality business, prudent investors may wish to wait for a lower share price before piling in.
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Peter Stephens owns shares of BAE Systems and Meggitt. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
