Morgan Stanley has upgraded Saab's stock rating from "underweight" to "overweight," raising its price target from SEK 540 to SEK 700. Following this announcement, Saab's shares closed at SEK 587.70, indicating a potential upside of approximately 19% if the new target is achieved. The stock increased by about 4.9% on Tuesday morning following the news.

Significance of This Upgrade

The upgrade is considered important as it reflects a shift in Morgan Stanley's outlook on Saab's growth potential in the European defense market. This recommendation aligns with the recent surge in defense contracts, which are forecasted to boost Saab's earnings substantially.

  • New price target for Saab is SEK 700.
  • Previous closing price was SEK 587.70.
  • Estimated EPS for Saab in 2030 is approximately 30% above Bloomberg consensus.
  • Saab's estimated backlog exceeds SEK 300 billion.

According to Morgan Stanley, Saab's earnings potential has not been fully appreciated by the market. The bank's new forecast is supported by a substantial increase in backlog, which was bolstered by several recent contracts, including:

  • A SEK 47 billion submarine deal from Poland.
  • A SEK 25 billion contract for Gripen aircraft from Ukraine.

Kongsberg's Downgrade

In contrast, Morgan Stanley has downgraded Kongsberg from "equal-weight" to "underweight," reducing its price target from NOK 310 to NOK 330. This downgrade stems from concerns about Kongsberg’s valuation relative to Saab’s more attractive growth prospects.

The decision to purchase Saab's GlobalEye surveillance aircraft by NATO, aimed at replacing its older Boeing E-3A fleet, adds another layer to Saab's improved outlook that has not yet been fully factored into consensus estimates, according to the bank.

Future Considerations

Investors should keep an eye on Saab's upcoming earnings reports and further developments in defense contracts to gauge the company's performance against expectations. The potential implications of NATO's equipment upgrades on Saab's revenue should also be monitored closely.

This material is for informational purposes only and does not constitute financial advice.