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The Melrose Industries (LSE:MRO) share price is up 11% over the past month. It may not be the loudest name in the aerospace sector, but its recent momentum is getting harder to ignore.
Despite a strong first-half 2025 performance, analysts have been relatively slow to adjust their outlook. The median 12-month price target from 13 analysts stands at 645p — around 11% above the last close at 581.4p — with a high of 825p and a low of 405p. That spread suggests lingering uncertainty, however I believe positive analyst revisions are on the way.
On 1 August, Melrose surprised the market with adjusted operating profit of £310m — a 29% improvement year on year and well ahead of consensus expectations. Margins rose significantly to 18%, up from 14.2% a year earlier, while cash flow strengthened despite ongoing supply chain issues and tariff-related challenge. Engines revenue jumped 11%, Structures rose 3%. Total revenue reached £1.72bn on a like-for-like basis.
Yet the last analyst move came in June, when Kepler Cheuvreux downgraded the stock to Hold, citing “no miracles” on sales and margins in H1. That call has aged poorly. The strong H1 delivery, particularly the company’s ability to navigate external pressures, suggests upgrades could follow in the coming months.
The valuation
Looking further ahead, Melrose’s management has vowed to deliver more than 20% in annual earnings growth through to 2029. The group’s current adjusted price-to-earnings ratio of 15.1 times looks modest given that ambition, and the resulting price-to-earnings-to-growth (PEG) ratio appears especially strong.
In a sector where names like Rolls-Royce trade on far higher multiples (39 times), Melrose could be undervalued. That’s particularly so given its 70% share of sole-source positions on its platforms. That type of commercial resilience isn’t easy to replicate, and arguably warrants a premium.
Looking at the balance sheet, Melrose net debt is expected to improve in the coming years. As such, the enterprise-value-to-EBITDA multiple (which accounts for net debt) is also expected to decline to 8.3 times by 2027. Operating leverage is improving, and the business is already generating healthy margins.
Revenue remains below pre-restructuring levels due to the GKN demerger, and it will remain so throughout the forecasting period. Now profitability has come into sharper focus, and management appears to be executing well.
The bottom line
However, it’s not all rosy for Melrose. The aerospace supply chain continues to pose challenges, particularly around materials and labour shortages. Tariff volatility and currency shifts — as seen in the slight downgrade to 2025 guidance on the back of a stronger pound — also introduce an element of unpredictability.
All-in-all however, Melrose is arguably not getting the attention it deserves. In fact, it’s my favourite UK stock at this moment in time. The fundamentals are strengthening, the valuation remains undemanding, and management is delivering.
While it’s not without risk, the long-term growth outlook is strong. I’ve built a large holding in Melrose and may buy more if it doesn’t mean I’m over-concentrated. Personally, I believe it’s well worth considering for UK investors.
