Bank of America Reshuffles European Defense Ratings

Bank of America (BofA) noted that Europe’s defence sector continues to benefit from higher military spending and a robust order environment, but highlighted growing differentiation among firms as investors evaluate earnings‑growth visibility, margin trends, and future demand.

Upgrades

  • Saab AB Class B (LON:0GWL) was upgraded to "buy" from "neutral" with the price objective raised to SEK 720 from SEK 655. BofA expects the company’s earnings‑per‑share to be 9 %–16 % above consensus for 2027‑30 and projects its 2030 surveillance‑segment revenue to be about 27 % above consensus. The upgrade is driven by anticipated revenue from GlobalEye production, growth in Giraffe 1X radar systems, ongoing Gripen fighter production, and a SEK 47 billion Polish submarine programme that could support margin expansion.
  • Dassault Aviation SA (EPA:AM) received a "buy" rating, up from "neutral", with the price target lifted to €360 from €345. BofA highlighted the Rafale backlog, which currently offers roughly 7.5 years of production visibility at existing delivery rates. A proposed Indian order for 114 Rafales and Ukraine’s ambition for up to 100 aircraft could raise the backlog above 400 aircraft, effectively doubling production visibility.

Downgrades

  • Babcock International Group PLC (BS:BABl) was downgraded to "neutral" from "buy"; its price objective was cut to £1,060 from £1,608. While the firm has a stronger balance sheet, greater defence exposure and improving margins, BofA sees limited earnings upside relative to consensus through FY30, expects nuclear‑related growth to moderate, and flags weaker prospects in its Civil Land and Marine segments.
  • RENK Group AG (ETR:R3NK) was also downgraded to "neutral" from "buy" with the target reduced to €42.50 from €62.50. BofA acknowledges that European land‑transmission demand underpins production expansion through 2030, but questions the durability of the elevated land‑equipment cycle beyond that horizon, noting uncertainty over longer‑term demand.

New Initiations

  • Fincantieri SpA (BIT:FCT) entered coverage with a "buy" rating and a €17 price objective. BofA points to potential upside from recent underwater acquisitions, accelerating naval‑revenue streams, and a structurally stronger cruise business, forecasting a 34 % EPS compound annual growth rate for 2026‑30.
  • CSG Nv Class A (AS:CSG) was initiated at "underperform" with a €13 target. The firm’s ammunition margin, currently above 30 %, may prove unsustainable as European shell‑making capacity expands and Ukraine‑related demand shifts from wartime consumption toward stock‑pile rebuilding.

Overall Outlook

BofA’s reshuffle underscores a sector where higher defence budgets are creating divergent investment narratives: firms with strong order books and clear growth pathways such as Saab and Dassault are rewarded, while those facing limited earnings upside or uncertain long‑term demand like Babcock and RENK see rating cuts. New coverage of Fincantieri reflects optimism around naval and cruise segments, whereas CSG’s underperformance rating signals caution over ammunition‑margin sustainability.