UK investors focused on the outperformance of the heavyweight Rolls-Royce in aerospace and defense, and its stock was the highest record.
But can another British defence strain be on its tail?
Melrose Industries, the jet engine parts supplier on the FTSE 100 list, is something to watch. Melrose supplies components for F-35 fighter jets, Chinook helicopters, and is exposed in both the US and European defence markets. It also supplies products to commercial aviation, and is experiencing a boom.
Its stock has fallen 13% since the start of the year, but 91 fund manager Alessandro Dicorrado believes Melrose is well suited to benefit from the ongoing engine refresh cycles across airlines, such as EaseedJet and Jet2.
The company has poured capital to meet this demand, but Dicolado expects a sharp turn, citing the engine’s 25-year lifespan as the basis for its long-term growth.
Like Rolls-Royce, Melrose can benefit from an increased commitment to defence spending to reach the state of “war combat readiness.”
Is Melrose Industry Buy, Sell, or Hold?
In March of this year, Morningstar analyst Loredana Muharemi raised the equity fair value estimate from 740p to 800p.
Despite bringing double-digit growth in both revenue and operating income in 2024, the stock is still under control. Management has issued conservative 2025 revenue guidance, with ongoing supply chain challenges focusing on emotions.
Still, by Morningstar’s own indicator, Melrose stocks are significantly undervalued. This is currently trading at 480p, below the 800p fair value estimate.
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