LIVE MARKETS-Missiles and naval orders driving US defence revenue pick-up - BofA

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MISSILES AND NAVAL ORDERS DRIVING US DEFENCE REVENUE PICK-UP - BOFA

Bank of America equity analysts are seeing a potential turning point for U.S. defence names based on recent commentary.

"Companies are indicating that the environment leading into 2027 may involve a step‑up in US defence spending, with preparatory actions already visible in areas such as missiles, air‑ and missile‑defence, and naval programmes," they write in a Monday note.

The European names they say are most exposed to this trend include the UK's BAE Systems BAES.L, Italy's Leonardo LDOF.MI and Germany's Renk R3NK.DE. All three get a buy rating from the team.

Indeed, some major U.S. players flagged early indications of a pickup in U.S. defence spending during the latest earning season, and BofA says that "portfolios are being aligned accordingly."

In particular they note emphasis on missile systems, air‑defence and shipbuilding.

"In our view, BAE's Electronic Systems (post Ball Aerospace acquisition) and Leonardo through DRS would be the names exposed the most to these areas," write the analysts.

Over the last 18 months, European countries have also been promising higher commitments to national defence budgets, but orders in the region have been flatter compared to U.S. peers over 2024-5.

"...this is likely due to the stronger revenue growth, as the cycle in Europe started earlier than the US," says BofA.

Still, European defence revenue growth has been on a steady incline since 2021, and accelerating quickly since mid-2023.

The main drivers have been Thales, Rheinmetall and BAE. Norway's Kongsberg KOG.OL, Spain's Indra IDR.MC and Sweden's Saab SAABb.ST have also experienced significant revenue growth, says BofA.

(Lucy Raitano)

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