European defense stocks have surged in recent months as geopolitical tensions prompt regional officials to ramp up spending on national security. In Germany, lawmakers have passed a historic debt reform , paving the way for a huge splurge on defense, while U.K. Prime Minister Keir Starmer has pledged to hike Britain’s national spend on defense . The EU has also drawn up plans to mobilize up to 800 billion euros ($862.2 billion) to bolster regional security. Europe’s Stoxx aerospace and defense index has gained around 34% since the beginning of the year — and analysts think some stocks have further to rise. Thyssenkrupp According to S & P Global data, Thyssenkrupp added around $1.5 billion to its market cap between the date of EU unveiling its ReArm Europe plan three weeks ago and Wednesday’s market close. Thyssenkrupp is planning to spinoff its marine systems division, with the new standalone unit set to be listed on the Frankfurt Stock Exchange, according to news agency Reuters . The firm reported a 50% increase in orders in its fiscal first quarter, thanks to “major orders” in its marine systems division, which builds submarines, ships and naval electronics. “The current fiscal and defense policy goals will probably result in further orders for the naval industry,” a Thyssenkrupp spokesperson told CNBC in an email last week. “Therefore, we are in constant contact with our German and European partners to be prepared for future requirements.” In early March, analysts at Citi kept the company as “buy,” arguing the risk-reward outlook for Thyssenkrupp was “still favourable” despite the share price doubling. ” Direction of travel for defence spending in Europe is up, which should translate into stronger for longer order intake for incumbent companies,” they said. “We have used [enterprise value]/backlog as an alternative metric to run valuation scenario for [Thyssenkrupp’s] defence business … Using the range of 0.3-0.5x of backlog, we arrive at a valuation range of €5-8.3 billion for TK’s marine business.” Thyssenkrupp’s stock has gained 150% since the beginning of the year. Renk Group Defense contractor Renk Group reported a record order intake of 1.4 billion euros ($1.5 billion) on Wednesday, citing strong market conditions. The company forecast revenue of 1.3 billion euros in 2025, with a medium-term outlook of 2 billion euros in revenue in 2028. Last year, Renk’s annual revenue jumped 23.2% year-on-year to 1.1 billion euros. On Tuesday, Deutsche Bank upgraded the company’s stock to a buy, hiking its target price for shares by 55% to 45 euros “to reflect the recent sector re-rating” and revised discounted cash flow assumptions. Rheinmetall German arms manufacturer Rheinmetall said earlier this month that it expects its defense sales to jump by up to 40% this year, predicting “major high-volume orders from military customers.” The sales increase was expected even without any potential boost from greater regional defense spending, the firm said, although it noted that it was “in a promising position to play a significant role in the upcoming increase in defense capability.” In the wake of the company’s earnings release, analysts at Bank of America said they saw a “clear path” to sales of 30 billion euros by 2029 for Rheinmetall , whose 2024 sales reached 9.75 billion euros. Beyond 2030, they said there was potential for the company to deliver sales of around 50 billion euros. Thales Since the ReArm Europe announcement on March 4, Thales ‘s market cap has increased by more than $6 billion, according to S & P Global data. Thales reported higher income and revenue for 2024, with CEO Patrice Caine telling CNBC after its earnings release earlier this month, that the EU’s defense spending plans “reinforce our own conviction that we see a decade of growth for Thales in defense — it will not change the equation for 2025, but clearly it’s a positive on the long run.” On Monday, UBS’s Ian Douglas-Pennant upgraded Thales stock to a buy recommendation, hiking the price target from 160 euros to 330 euros. “We believe management’s guidance for 6-7% organic sales growth per year in the long term is likely to prove conservative,” he said in a note. “We model 12.6% 2023-30 CAGR.” — CNBC’s Arjun Kharpal contributed to this report.
