# Major European Defense Companies
# BAE Systems (UK)
* **Performance:** BAE Systems saw **sales grew 14% to £28.3 billion** in 2024, with underlying EBIT rising \~12%. EPS also increased from 63.2p to 68.5p, reflecting strong execution and higher profitability.
* **Backlog & Contracts:** The company’s **record-high backlog of £77.8 billion** (up 11% YoY) represents nearly three years of revenue visibility. It secured £33.7 billion in new orders, including significant contracts related to the AUKUS submarine pact and Eurofighter program.
* **Geopolitical Tailwinds:** With the UK increasing defense spending beyond 2% of GDP, BAE stands to benefit from ongoing investment in combat aircraft, naval ships, and nuclear submarines. It's previously been described as having **"the keys to the back door of Number 10 \[Downing Street\]"**
* **Valuation:** Currently trading at **21× earnings** (historical average \~14×), with a **1.5× P/S ratio and EV/EBITDA around 12–14×**. While some growth is priced in, there remains room for upside if European defense budgets continue expanding.
# Thales (France)
* **Performance:** Thales reported **record-high order intake of €23.1 billion** in 2023, lifting its **backlog to €47 billion** by mid-2024. Sales grew \~5%, with EBIT up \~10%, demonstrating strong operational performance.
* **Backlog & Contracts:** The company secured several contracts exceeding €500 million each, including deals for Rafale fighter systems, air defense radars, and a major 10-year French defense cloud project.
* **Geopolitical Factors:** With France increasing military spending and the EU pushing for greater defense self-sufficiency, Thales is well positioned in aerospace, cyber-security, and defense electronics.
* **Valuation:** Thales trades at a **P/E of 28× and an EV/EBITDA of 13–15×**, higher than historical norms, suggesting much of the expected growth is might be reflected in its stock price.
# Leonardo (Italy)
* **Performance:** Leonardo posted **double-digit growth in 2024**, with **revenues up 11% to €17.8 billion** and EBITA rising 13%.
* **Backlog & Contracts:** Its **order backlog now exceeds €44 billion**, with strong bookings for helicopters, Eurofighter Typhoon exports, and defense electronics.
* **Growth Drivers:** As Italy increases defense spending toward NATO’s 2% target, Leonardo is set to benefit from major defense programs. Additionally, its ownership of Leonardo DRS provides access to U.S. military contracts.
* **Valuation:** Still trading at **20× earnings and only \~1× sales**, despite it's recent impressive runup, Leonardo appears to still be undervalued compared to peers. If it continues improving margins and cash flow, there is **significant room for multiple expansion**.
# Rheinmetall (Germany)
* **Performance:** Rheinmetall transformed into a **rapidly growing pure-play defense leader**, with **sales up 30–40% and profits doubling** in 2023.
* **Backlog & Contracts:** The company’s **order backlog soared to €52 billion by Q3 2024**, nearly five times its annual revenue. Major wins include a **€8.5 billion artillery ammunition deal**, a **€3.5 billion military truck order**, and expanding production in air defense and armored vehicles.
* **Geopolitical Momentum:** Germany’s €100 billion defense modernization effort provides a long-term growth runway for Rheinmetall, particularly in armored vehicles, artillery, and munitions.
* **Valuation:** The stock trades at over **80× earnings,** with an insane recent run. While its backlog supports long-term growth, **valuation risk is high**. I'd probably wait for a pullback on this one but what do I know, I wouldn't have bought Tesla either.
# Saab AB (Sweden)
* **Performance:** Saab delivered **23% organic sales growth** in 2024, with **EBIT up 32% and revenue reaching SEK 63.7 billion (\~$6.2 billion)**.
* **Backlog & International Demand:** Its **order backlog grew 22% to SEK 187 billion (\~$17 billion)**, supported by strong exports of anti-tank weapons, radars, and Gripen fighter upgrades.
* **Growth Outlook:** With Sweden increasing defense spending and expanding its NATO role, Saab is well-positioned. Demand for its Carl-Gustaf anti-armor weapons and air defense radars continues to surge.
* **Valuation:** Saab trades at **35–40× earnings**, above its historical average (\~23×). While it has strong international demand, much of its near-term growth is already priced in.
# Valuation Comparison of Major Players
|Company|P/E (Trailing)|P/E (Forward)|EV/EBITDA|P/S Ratio|Upside Potential|
|:-|:-|:-|:-|:-|:-|
||
|**BAE Systems**|\~21×|\~15×|12–14×|\~1.5×|**Moderate**|
|**Thales**|\~28×|\~23×|13–15×|\~2×|**Limited** (Priced in)|
|**Leonardo**|\~20×|\~12×|\~9×|\~1×|**High** (Undervalued)|
|**Rheinmetall**|\~80×|\~30×+|20×+|\~3×|**High** (But Expensive)|
|**Saab**|\~41×|\~24×|\~14×|\~2×|**Moderate** (Valuation Risk)|
# Under-the-Radar EU Defense Companies
# Hensoldt (Germany)
* **Specializes in defense electronics (radars, optronics, electronic warfare).**
* **Backlog of €6.64 billion** (up 20% YoY).
* **Revenue grew 21% in 2024**; targets €5 billion annually by 2030.
* **Undervalued vs peers despite critical role in surveillance & air defense.**
# QinetiQ Group (UK)
* **Provides defense R&D, robotics, and test & evaluation services.**
* **Backlog of £2.9 billion**, growing internationally.
* **P/E \~16× (trailing), \~12× (forward).**
* **Niche in high-tech defense solutions, with strong cash flow.**
# Chemring Group (UK)
* **Specializes in munitions, countermeasures, and explosive detection.**
* **Backlog of £1.35 billion, revenue up 8% in 2024.**
* **P/E in mid-teens, trading at a discount vs larger defense firms.**
* **High demand for its battlefield tech and missile countermeasures.**
# Kongsberg Gruppen (Norway)
* **Leading missile and air defense supplier in Europe.**
* **Backlog of NOK 88 billion (\~$8.5 billion).**
* **Major supplier of NASAMS air defense system and Naval Strike Missile.**
* **Strong growth potential as NATO nations standardize on its weapons.**
* **Increased Arctic military interest could mean it's a good speculative Arctic play**
# Conclusion/Outlook
With **record order backlogs and rising military budgets**, European defence is likely to see a rather **significant boom**. Fears of a complete **NATO collapse aside**, EU leaders including **Macron and Germany's new chancellor** are increasingly open and pushing for a **European army**, as it's clear the age of reliance on US defence is coming to an end. I'm going to be creating a mini-etf with these stocks (allocations pending) and seeing how they perform over the next few years.
**TLDR**:
* **Leonardo and BAE Systems** appear **undervalued** relative to their peers.
* **Thales, Saab, and Rheinmetall** have strong growth, but their stocks already reflect much of the upside.
* **Smaller players like Hensoldt, QinetiQ, and Chemring** could offer better risk-reward opportunities.
Given the rapid evolution of defense spending, **selecting stocks with solid backlogs and reasonable valuations** will be key to capturing underappreciated upside.