Avio Shares Jump After Berenberg Upgrade Cites Surging Rocket Motor Demand

Shares of Italian rocket motor manufacturer Avio SpA (AVI.MI) gained more than 4% after Berenberg upgraded the company to "buy" from "hold." The investment bank cited a structural shortage of solid rocket motors for missiles and Avio's strategic position to become a key independent supplier to U.S. defense contractors.

Berenberg's Bullish Thesis

In its research note, Berenberg argued that the global shortage of solid rocket motors has deepened due to ongoing conflicts, creating a significant market opportunity. The bank stated that major U.S. missile producers like Lockheed Martin and Raytheon are seeking to diversify their supply chains, positioning Avio to gain substantial market share with its established expertise.

According to Berenberg, Avio estimates the combined U.S. and European shortfall for missile propellant at 3,400 tons per year through 2030, a figure that is 40% wider than it was a year ago. This supply gap is compounded by rising defense spending, with U.S. missile budget requests expected to increase from approximately $36 billion in fiscal 2026 to $95 billion in fiscal 2027.

Financial Forecasts Raised Significantly

Reflecting this positive outlook, Berenberg substantially increased its long-term financial projections for Avio. Key forecast changes include:

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• 2030 defense propulsion revenue raised to €532 million from a previous €312 million.
• 2030 adjusted EBITDA forecast lifted by 42% to €141 million.

Berenberg noted its new 2030 revenue and adjusted EBITDA forecasts are now 19% and 49% above consensus estimates, respectively. The bank reported that Lockheed Martin and Raytheon have already lined up Avio for six programs, with Lockheed's commitments expected to secure almost half the capacity of Avio's planned 700-ton U.S. plant.

Near-Term Costs and Cautions

Despite the long-term optimism, Berenberg acknowledged near-term headwinds, cutting its earnings per share (EPS) forecasts for 2026, 2027, and 2028. The revisions are due to the significant capital expenditure associated with Avio's expansion into the United States.

Avio is investing over $500 million in the new U.S. facility, which is not expected to begin production before the end of 2028. Berenberg noted this will lead to negative free cash flow during the construction phase, a factor that underpinned its previous "hold" rating on the stock.