Bank of America Upgrades Saab, Dassault Amid European Defense Sector Reshuffle

Bank of America has adjusted its ratings across the European defense sector, upgrading shares of Saab and Dassault Aviation while downgrading others, signaling a more selective investor approach. The bank noted that while the industry continues to benefit from increased military spending, the focus is shifting toward the visibility and durability of individual companies' earnings growth.

Upgrades Focus on Backlog and Growth

BofA analysts raised their rating on Sweden's Saab AB to "Buy" from "Neutral," lifting the price objective to SEK 720 from SEK 655. The bank cited stronger-than-consensus growth expectations, particularly in Saab's Surveillance business, forecasting its earnings per share could be 9%-16% above consensus in 2027-2030. Key drivers identified include production of the GlobalEye surveillance aircraft and potential margin expansion from Gripen fighter jet production and a Polish submarine program.

Dassault Aviation SA was also upgraded to "Buy" from "Neutral," with its price objective increased to €360 from €345. Analysts highlighted the French aerospace company's robust Rafale fighter jet backlog, which provides approximately 7.5 years of production visibility. Potential new orders from India and Ukraine could materially extend this production timeline, according to the note.

Downgrades Reflect Earnings Uncertainty

Conversely, BofA downgraded Babcock International Group PLC to "Neutral" from "Buy," slashing its price objective to 1,060 pence from 1,608 pence. While acknowledging the company's stronger balance sheet and improving margins, the bank sees limited earnings upside compared to consensus estimates through fiscal 2030, flagging moderating growth in its nuclear division.

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Germany's RENK Group AG was also lowered to "Neutral" from "Buy," with its price target cut to €42.50 from €62.50. Analysts questioned the durability of the current high demand for land-based military equipment beyond 2030, creating uncertainty for the transmission manufacturer's long-term growth.

New Coverage Initiations

In addition to the rating changes, Bank of America initiated coverage on several other defense firms:

• Fincantieri SpA: Started with a "Buy" rating and a €17 price objective, pointing to accelerating naval revenue and a stronger cruise business.
• CSG Nv: Initiated with an "Underperform" rating and a €13 target, with analysts arguing that the ammunition maker's high profit margins of over 30% may not be sustainable as European production capacity expands.