Investing.com -- BofA Securities has upgraded Kongsberg Gruppen’s (OL:KOG) rating to a "buy" from “underperform” rating with a new price objective of 404 Norwegian Krone (NOK), an increase from the previous 273.20 NOK.
This double upgrade is primarily driven by the company’s increasing portfolio relevance in the defense sector and its attractive valuation.
Analysts at BofA Securities anticipate a decade of "hard power," with global demand for missiles, air defense, and defense electronics, critical components for national sovereignty.
Kongsberg’s defense portfolio is strategically positioned to address these core capability shortages across Europe and worldwide.
Despite recent underperformance compared to its defense peers, Kongsberg is seen as an attractive entry point for investors.
BofA Securities projects a shift in investor focus toward longer-duration themes within the defense sector.
The upgrade reflects revised financial projections, with BofA Securities increasing its 2025-28 EBIT estimates by 6-13%.
Additionally, EV/EBIT target multiples for Kongsberg Defence & Aerospace, Kongsberg Maritime, and Kongsberg Discovery (NASDAQ:WBD) have been raised to 30x, 20x, and 24x, respectively, on a stronger growth outlook.
The conglomerate discount in the sum-of-the-parts valuation has also been reduced from 10% to 5%.
Kongsberg Defence & Aerospace is highlighted as a "structural winner," particularly in air defense and missiles.
NATO members are expected to significantly boost ground-based air defense systems to counter modern threats. KDA’s portfolio, including radar, communications, and precision strike capabilities, is poised to be central to future defense strategies.
KDA has maintained strong book-to-bill (B2B) ratios of approximately 2.4x and 2.8x in 2023-24, coupled with about 19% topline growth in both years.
BofA Securities forecasts KDA’s average B2B at around 1.8x from 2025 to 2030, ensuring substantial revenue visibility beyond 2030.
Kongsberg’s flagship products, such as the Naval Strike Missile, Joint Strike Missile, and National Advanced Surface to Air Missile System, face limited European competition.
The company’s partnership with Raytheon (NYSE:RTN) also provides considerable exposure to the U.S. defense budget.
Kongsberg’s 12-month forward price-to-earnings ratio currently shows its lowest premium versus the sector since the Ukraine invasion, about 40%.
This presents an opportune entry point for investors anticipating a rotation into air defense and missile exposure, alongside improving U.S. defense visibility, heading into the latter half of 2025.