Analysts Predict Rally for European Defense Stocks

Barclays and RBC Capital Markets predict a reignited rally for European defense stocks as the region enters a new phase of rearmament. Analysts project that efforts to deter Russia will drive annual defense spending growth of 16% through 2030, focusing primarily on traditional hardware.

Despite the bullish outlook, the sector has declined 13% from its March peak. This downturn resulted from stretched valuations and investor concerns regarding the adoption of drone technology. Analysts suggest the period of easy gains has ended, and investors are now prioritizing execution and portfolio quality over broad sector growth.

As part of this outlook, RBC Capital Markets initiated coverage with outperform ratings for Rheinmetall AG, Thales SA, and Leonardo SpA. Barclays upgraded Saab AB to overweight and initiated overweight ratings for Kongsberg Gruppen ASA, Babcock International Group PLC, and Renk Group AG.