LIVE MARKETS-Defence shares cool off; BofA sees a buying window

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DEFENCE SHARES COOL; BOFA SEES A BUYING WINDOW

After two years of war-driven gains, the rally in European defence shares has cooled as speculation about a U.S.-brokered ceasefire plan for Ukraine gains traction.

But BofA analysts say the pullback may be short-lived, with NATO's spending ambitions and capacity build-outs setting the stage for another rally.

The recent dip looks like a buying opportunity, they say.

Following Russia's invasion of Ukraine , governments have moved away from austerity toward multi-year procurement plans, locking in demand well beyond 2030. This is seen not as a temporary boom but as part of a decade-long rebuild of military capability.

BofA says defence stocks are now much cheaper than earlier this year, trading at about 11.6 times expected 2028 earnings. They believe spending plans are strong, with NATO aiming for defence budgets equal to 3.5% of GDP, adding roughly $310 billion.

New factories are expected to ramp up from 2027, and the brokerage sees the sector poised for growth well beyond 2030.

The sector, which traded at a 120–130% premium to the STOXX 600 European benchmark earlier this year, has sharply de-rated in recent months. Yet BofA expects 2026 to be a record year for orders, forecasting 12.5% annual organic revenue growth through 2030, 280 basis points of margin expansion, and EPS CAGR near 20%.

BAE SystemsBAES.L , with 50% U.S. exposure, looks insulated from European fiscal risk. Meanwhile, Renk R3NK.DE and Saab SAABb.ST face steeper expectations, requiring profit growth nearly double local budget trajectories, BofA say.

Not everyone agrees however.

Citi think the sector may have overshot after a 50% year-to-date rally, downgrading stock ratings on Hensoldt, Renk and Saab.

(Rashika Singh)

EARLIER LIVE MARKETS POSTS:

CALMER THAN IT COULD HAVE BEEN CLICK HERE

EUROPE BEFORE THE BELL: DRUGS, FED, UKRAINE CHINA, BUDGET CLICK HERE

MORNING BID: REEVES TAKES CENTRE STAGE CLICK HERE