Jefferies’ New Top Pick in European Aerospace & Defense
Jefferies announced an upgrade of Leonardo S.p.A. to a Buy rating, elevating the Italian aerospace and defence group to its top pick in the European aerospace and defence coverage universe, overtaking Rheinmetall AG. The brokerage explained that the change reflects a strategic shift toward defence electronics and air‑defence platforms rather than land‑based systems.
Valuation Methodology Shift
The firm moved most defence names to a 2028 sum‑of‑the‑parts (SOTP) valuation horizon, stating that “near‑term execution remains key.” Under this framework, Jefferies projects Leonardo’s 2028 EBIT to be 8 % above consensus estimates and assigns a 30 % upside to its price target.
Updated 2026 Estimates
Jefferies raised its 2026 forecasts for Leonardo to incorporate a nine‑month contribution from Iveco Defence Vehicles, aligning with company guidance. The contribution is quantified at roughly €1.1 billion of sales and €120 million of EBITA for the year. The brokerage also lifted its assumptions for Aerostructures margin recovery and increased growth expectations for the Defense Electronics & Advanced Technologies (DE&E) division, citing rising demand for air‑defence systems.
Subsidiary Premium and Multiple Tailwinds
Leonardo’s majority‑owned subsidiary DRS, more than 70 % owned and consolidated within DE&E, is trading at a 22× 2028 EV/EBIT multiple, compared with the 17× multiple Jefferies applies to the division in its SOTP model. Analysts noted that this premium could generate additional multiple tailwinds for the group.
Key Growth Drivers Highlighted
Analysts, including Chloe Lemarie, pointed to Leonardo’s exposure to MBDA – a European missile‑systems manufacturer jointly owned by Airbus, BAE Systems, and Leonardo – as a major upside driver for the 2029 outlook. The team also highlighted potential export opportunities for the SAMP/T NG and Eurofighter programmes, and the removal of uncertainty around GCAP funding following the Defence Industrial Partnership.
Relative Positioning of Peers
The valuation horizon shift favours defence‑electronics plays, moving both Thales and Leonardo up in Jefferies’ order of preference, while prompting price‑target cuts for CSG and RENK despite largely unchanged full‑year estimates. Jefferies retained CSG within its top‑pick list ahead of its second‑quarter results, citing a “highly de‑rated profile,” and named Rolls‑Royce its top pick in civil aerospace, expecting guidance upgrades on Power Systems and aftermarket margins.
Overall Outlook
Jefferies expects Leonardo to re‑rate toward multiples comparable to BAE Systems, driven by the SOTP valuation, the contribution from Iveco Defence Vehicles, margin recovery in aerostructures, and strong growth prospects in defence electronics and air‑defence systems.