BofA cuts Saab stock rating to underperform, raises target

BofA Securities downgraded Saab AB from Neutral to Underperform, while increasing the price target from SEK428.00 to SEK444.00, citing concerns about the company's valuation and long-term growth prospects beyond 2025. The firm projects Saab's topline growth to surpass the sector average through 2028, but expressed skepticism about achieving high teens organic growth between 2025 and 2030 due to weak visibility outside of Sweden and potential slowdowns in key product areas. BofA also highlighted Saab's valuation as demanding, noting a roughly 43% premium compared to the sector based on 2027 EV/EBIT estimates.

Analysis

BofA Securities has downgraded Saab AB to Underperform from Neutral, concurrently raising its price target from SEK428.00 to SEK444.00, signaling a nuanced view on the defense company's prospects. The rationale for the downgrade centers on concerns regarding Saab's demanding valuation and uncertainties surrounding its long-term organic growth sustainability beyond 2025. While BofA projects Saab's topline growth at an attractive 16% through 2028, surpassing the sector average of 12.5%, it questions the feasibility of achieving high teens organic growth between 2025 and 2030, estimating it closer to 15.5%. This skepticism is rooted in weak visibility for growth outside Sweden, which currently accounts for approximately 41% of sales, and an anticipated slowdown post-2030 in key product areas such as Dynamics, Kockums, and Aeronautics, relative to the Surveillance segment. Saab's valuation is highlighted as a significant concern, trading at an estimated 43% premium to the sector based on BofA's 2027 enterprise value to EBIT figures. Despite a slight upward revision in EBIT estimates for 2028-2030 (0-2%) due to stronger outlooks for Dynamics and Surveillance, and rolling forward the valuation basis to 2029 estimates, the overall analyst sentiment is cautious, influenced by Sweden's anticipated defense spending reaching 3.5% by 2030.

Key Decisions for Investors

• Investors should critically assess Saab's current valuation, specifically the noted 43% premium over sector peers, against BofA's concerns about achieving sustained high-teens organic growth in the latter half of this decade.
• Monitor Saab's progress in diversifying its revenue base and securing robust growth trajectories outside of Sweden, as this is a key factor highlighted by BofA impacting long-term growth conviction.
• Consider the implications of the Underperform rating despite the increased price target, as BofA's analysis suggests potential headwinds to outperformance due to valuation and challenges in maintaining growth momentum in specific segments post-2030.