Today’s Falling Knife: Manufacturing Blunder To Cost Meggitt Plc £20m

The shares of Meggitt (LSE:MGGT) crashed by 8% to 526p in early London trade this morning after the specialist defence manufacturer revealed that a manufacturing blunder had caused the company to set aside £20m in potential costs.

Meggitt, which designs and creates niche components and sub-systems for the defence and aerospace industries, also lowered its outlook for this year’s revenue growth to “low single digits”.

Today’s manufacturing mishap relates to a raw material supply issue dating back to last year.

Looking further ahead, the company gave some guidance for growth in 2014:

“Based on current projections, and notwithstanding the uncertainty in military end markets, the Group continues to expect percentage constant currency revenue growth in the mid-single digits in 2014.”

With a market cap of £4.1bn, Meggitt’s shares trade at 13 times their expected earnings, and offer a prospective dividend yield of 2.5%.

Of course, whether that valuation, today’s update and the future prospects for the defence industry all combine to make shares of Meggitt a ‘buy’ remains your decision.

Manufacturing blunders and shocking headlines are never good publicity for a company, but it can also present long-term investors with opportunities to invest if the market overreacts.

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> Mark does not own any shares in this article.