On Monday, UBS initiated coverage on Saab AB (SAABB:SS) (OTC: SAABF) stock, a leading Swedish defense company, with a Neutral rating and a price target of SEK 260.00.
The firm's analysis suggests that while Saab is poised to benefit from increased defense spending in Europe, particularly through its Dynamics business, which accounts for approximately 22% of its sales, this positive outlook is believed to be already reflected in the stock's current valuation.
Saab AB has experienced a notable uptick in its business due to rising defense budgets across Europe. The company's Dynamics segment, specializing in land defense systems, has been a significant contributor to its growth. UBS forecasts a compound annual growth rate (CAGR) of around 16% for Saab's group sales from 2023 through 2027.
Despite the company's strong position to capitalize on the defense spending surge, UBS points out that the stock's valuation is relatively high.
Saab's shares are trading at approximately 28 times the 1-year forward price-to-earnings (P/E) ratio, which is around a 40% premium compared to the sector. This premium stands in contrast to its historical average, where it has typically traded at about a 20% premium.
The Neutral rating indicates that UBS analysts believe Saab's stock price adequately reflects the company's growth prospects and current market conditions.
They have taken into account the defense sector's overall performance and Saab's position within the market to arrive at this assessment.
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