Barclays has opened coverage on a group of European defence contractors, assigning Overweight ratings to Kongsberg, Babcock and Renk, while initiating Chemring Group at Underweight. The bank also moved Saab from Underweight to Overweight. The research team framed the moves as part of a broader view that "the 'easy trade' is over" and that the industry is entering a new stage.
Analysts' view and sector context
According to Barclays, European defence equities have corrected about 13% from their January 2026 highs amid slowing earnings momentum and capital reallocations into AI and defence-technology names. The bank noted that the weakness is concentrated in 2026 estimates, while projections further out show modest increases - with 2027 forecasts up 4% year-to-date and 2028 estimates up 8%.
Analysts led by Afonso Osorio highlighted that the sector still points to roughly 24% profit growth through 2028, a pace they described as "better than Defence Tech's growth and at a fraction of the price." Barclays also subjected consensus forecasts to a stress test - cutting 2028 estimates by 15% and 2030 estimates by 20% - and concluded they "still see mid-teens growth at a compelling valuation."
Company-level rationale
- Kongsberg: Barclays identified Kongsberg as its top pick among the new names. The bank cited the company’s "market-leading positions in the fastest-growing areas of defence spending," naming air defence, missiles and counter-UAS systems. Barclays pointed to a record backlog of NOK 158 billion, which the bank says covers more than four years of revenue.
- Babcock: Described by Barclays as "the U.K. infrastructure play," Babcock is credited with exposure to protected elements of the U.K. defence budget, including nuclear submarines and naval availability. Barclays also noted potential upside from AUKUS and Virginia-class submarine optionality that it believes is not yet reflected in forecasts.
- Renk: For Renk, Barclays argued the firm occupies a "mission-critical monopoly" position in transmissions for tracked military vehicles, supporting more than 70 armed forces. The bank said Renk’s backlog is fixed at roughly three times revenue.
- Chemring Group: Initiated at Underweight, Chemring trades at roughly a 50% discount to the sector, but Barclays cited several concerns. Those include the potential for peak ammunition margins, significant exposure to Ukraine and the company's limited track record since listing.
- Saab: Barclays upgraded Saab to Overweight, pointing to improving order conversion, especially from European and NATO customers, and a stabilising Aeronautics margin. The bank noted Saab "trade[s] on 20x 2028 EBIT (vs sector: 14x), indeed expensive but for good reasons."
What Barclays is weighing
The research team emphasised that while short-term estimates have been pressured, medium-term earnings and profit growth figures remain constructive. Even after applying significant downside shocks to 2028 and 2030 consensus numbers, Barclays’ view is that the sector can deliver mid-teens profit growth and still present a compelling valuation opportunity relative to peers in defence technology.
Summary
Barclays has launched coverage on several European defence names and upgraded Saab, reflecting a cautious optimism about longer-term profit growth despite near-term estimate weakness. Kongsberg, Babcock and Renk received Overweight ratings, Chemring was started at Underweight, and Saab was upgraded to Overweight.
Key points
- Barclays initiated Kongsberg, Babcock and Renk at Overweight, and started Chemring at Underweight; Saab was upgraded to Overweight from Underweight.
- The bank says the sector has de-rated about 13% from January 2026 peaks, but 2027 and 2028 earnings forecasts have risen 4% and 8% year-to-date, respectively.
- Analysts led by Afonso Osorio estimate roughly 24% profit growth through 2028 and, even after stress-testing, expect mid-teens growth at an appealing valuation.
Risks and uncertainties
- Near-term earnings momentum has stalled, with the weakness concentrated in 2026 estimates - a risk to stock performance for defence names sensitive to 2026 guidance.
- Chemring faces specific risks cited by Barclays, including potential peak ammunition margins, high exposure to Ukraine and a limited track record as a newly listed company.
- Valuation risk: some names, notably Saab, trade at elevated multiples - Barclays notes Saab at 20x 2028 EBIT versus a sector multiple of 14x, which could pose downside if order conversion or margins deteriorate.
Tags: defence, equities, Europe, analysts, backlog