Barclays has initiated coverage on four European defence companies, Rheinmetall, Hensoldt, Leonardo and Saab, flagging the sector as Europe re-prioritises defence amid rising geopolitical tensions and evolving budgetary commitments.
Shares of Rheinmetall, Hensoldt, Leonardo and Saab were trading lower between 0.9% and 3.9% at 04:35 ET (08:35 GMT).
Analysts at Barclays said the region, under-invested for more than two decades post-Cold War, now faces a potential super-cycle in defence spending that could extend well into the 2030s.
The brokerage notes that most European countries, excluding Spain, have communicated plans to allocate 3.5% of their GDP to core defence by 2035.
Barclays’ central scenario projects an average of 3% of GDP by that year, with Germany’s budget viewed as the most credible.
Analysts caution that execution risks exist across all companies, depending on country-specific dynamics and production ramp-up capabilities.
Rheinmetall, rated “overweight” by Barclays, is described as a short-cycle beneficiary with high exposure to the German defence budget, which accounts for approximately 30% of the company’s total revenues.
Barclays projects Rheinmetall’s revenue to reach €48 billion by 2030, with operating margins rising to around 20% from 15.2% in 2024, and an EPS compound annual growth rate of 39%.
Analysts anticipate that Rheinmetall could capture roughly 30% of the European market by the mid-2030s, driving annual growth of 7–8% from 2030 to 2035, following an expected 30% expansion until 2030.
Hensoldt, rated “equal weight,” has strengthened its position in radars and optronics, with a backlog covering three years of revenue and tripled since 2019.
Barclays expects EBITDA margins of 20% by 2030, with earnings growth of 21%. The brokerage noted, however, that Hensoldt’s long-duration portfolio and potential investment requirements for production capacity may delay near-term growth acceleration.
Leonardo, also rated “equal weight,” is described as having a comprehensive portfolio spanning aerospace, defence and cybersecurity.
Barclays estimates that approximately 60% of Leonardo’s European defence business is tied to the Italian and UK budgets, which may limit growth relative to peers.
Analysts project annual earnings growth of 11% through 2030, assuming no delays in ongoing restructuring programs.
Saab, rated “underweight,’ is expected to see demand growth for its niche defence products but faces constraints due to smaller scale and limited exposure to faster-growing European budgets.
Barclays flagged that Sweden, the Nordics and Baltics have smaller budgets in euro terms, with some already near the 3.5% GDP target.
Analysts noted margin pressures in Saab’s Aeronautics division and intense competition in fighter jets as key risks.
Year-to-date share performance has been strong across the sector. Barclays reported gains of 184% for Rheinmetall, 162% for Hensoldt, 120% for Saab, 82% for Leonardo, and 62% for Thales.
According to Barclays’ bottom-up modeling, Rheinmetall’s operating profit could reach €9.5 billion versus consensus of €7.6 billion, Hensoldt is 13% ahead of consensus, Leonardo is in line, and Saab is 16% below consensus.
Barclays pointed to the German Capital Markets Days in November as important milestones, with Hensoldt expected to revise its 2030 revenue outlook on November 11 and Rheinmetall following on November 18.
Analysts said these updates may provide revised assumptions on European defence spending and company market share trends through the end of the decade.
Barclays said that while the long-term prospects of the sector remain positive due to high visibility, projected double-digit revenue growth, margin improvement, and strong cash flows, execution risks and national budget timelines will remain key factors shaping performance in the near to mid-term.
Source :
https://www.investing.com/news/stock-market-news/barclays-initiates-coverage-on-european-defence-stocks-ahead-of-budget-surge-4230715
