Jefferies upgraded German defence electronics group Hensoldt to Buy from Hold and established a price target of €90, citing robust order momentum and sustained demand for air-defence capabilities that, in the broker's view, make the company's stated 2026 free cash flow guidance appear conservative.
Analysts at Jefferies highlighted that Hensoldt enters 2026 coming off a heavy order wave in 2025 that produced significant advance payments. The brokerage noted the company has more than 70 proposals planned for 2026, representing roughly €48 billion in potential business, and expects continued substantial down payments next year that would bolster cash flow.
Management has guided free cash flow for 2026 to a range of about €204 million to €209 million. Jefferies argued this publicly provided range looks cautious given the anticipated scale of advance payments, even as Hensoldt steps up capital spending for a new sensors manufacturing facility and an optronics repair centre.
Demand for air-defence systems is a principal driver in Jefferies' reassessment. The brokerage pointed to increased military procurement in Germany, with an emphasis on air-defence capabilities, as supporting orders for Hensoldt's TRML-4D and Spexer radar families. Jefferies framed this push as part of a broader effort among NATO members to expand air-defence capacity, and said the prevalence of drones and missiles in recent conflicts has reinforced the need for detection and surveillance systems.
Jefferies expects revenue growth from these programmes to be back-end loaded, with a larger contribution occurring later in the decade - a pace the bank said is already priced into market expectations. As a result, Jefferies largely maintained its revenue and adjusted EBITDA forecasts.
However, the bank trimmed its 2026 earnings estimate by about 6% to reflect higher interest costs and factored in roughly €80 million of additional capital expenditure next year. The combined effect left Jefferies comfortable upgrading the stock while keeping most operating metrics steady.
On valuation, Jefferies noted Hensoldt's recent share-price weakness has made the stock more attractive relative to peers. The firm estimated Hensoldt now trades at approximately a 10% premium to European defence peers, down from about a 50% premium at its peak, and suggested the pullback may overstate execution risks.
Impacted sectors: defence equipment and aerospace supply chains, industrial manufacturing, and financial markets tracking defence valuations.
Analytical note: Jefferies' upgrade rests on near-term cash support from advance payments and a lengthy proposal pipeline, while acknowledging timing of revenue recognition will likely favour later years.