Dassault Aviation Upgraded to 'Buy' by BofA on Rafale Order Potential

BofA Securities has upgraded Dassault Aviation SA to “Buy” from “Neutral,” citing the potential for significant new orders for its Rafale fighter jet and an attractive valuation following a recent stock price decline. The bank also raised its price target on the French aerospace and defense company to €360 from €345.

The Analyst's View

In a note to clients, BofA stated that its new price target implies a potential upside of approximately 27% from the €284 share price cited in its report. The upgrade comes after the stock has fallen about 20% from its year-to-date high, which the bank views as creating a more compelling entry point for investors.

BofA highlighted what it considers a low valuation for the company. Dassault currently trades at about eight times its estimated 2027 enterprise value to EBIT (earnings before interest and taxes), a multiple the bank sees as modest given the expected durability of its earnings.

Rafale Orders Provide Long-Term Visibility

Dassault's current backlog for the Rafale fighter already provides about 7.5 years of production visibility at current delivery rates, according to the bank. However, BofA sees significant further upside from two potential large-scale contracts that have not yet been finalized.

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• India: A proposed order for 114 Rafales could become a key catalyst in the fourth quarter. BofA notes this would be the largest export order in the aircraft's history.
• Ukraine: The country has expressed interest in acquiring up to 100 Rafales. An initial order for 16 aircraft is expected under an agreement with France, with deliveries potentially starting in 2028-29.

Should both of these prospects convert into firm orders, Dassault’s total Rafale backlog could exceed 400 aircraft. This would extend the company's production visibility to approximately 15 years at 2026 production rates, BofA estimates.

Undervalued Business Jet Division

BofA also sees hidden value in Dassault’s Falcon business jet division. The bank's reverse sum-of-the-parts analysis suggests the market is effectively assigning a negative value to the Falcon unit, after accounting for the defense business and Dassault's 25% stake in Thales. For comparison, BofA noted that competitor Bombardier trades at about 19 times its 2027 EV/EBIT.

Despite this long-term value, the bank anticipates some near-term margin pressure from the development of the new Falcon 10X, with first deliveries slated for 2029. Key risks to the bank's thesis include the failure of the potential Indian and Ukrainian orders to materialize at the expected scale or delays in the Falcon 10X certification.