Several
countries
have
been
beefing
up
their
defense
budgets
in
light
of
mounting
geopolitical
tensions,
and
Goldman
Sachs
has
named
several
European
stocks
to
play
the
theme
right
now.
“We
believe
we
are
in
the
middle
of
a
super-cycle
in
defense
spending,”
the
investment
bank’s
analysts,
led
by
Victor
Allard,
wrote
in
an
April
9
note,
adding
that
European
defense
spending
in
particular
is
expected
to
grow
at
a
compound
annual
growth
rate
of
4.5%
in
the
2022-2027
period,
up
from
3%
in
2015-2020.
European
defense
stocks
“have
closely
tracked
super-cycles
and
are
now
“trading
at
peak
multiples
(20x
12-month
forward
price-to-earnings)
vs
history,”
which
translates
to
a
45%
premium
to
the
benchmark
Stoxx
600
index
,
the
bank’s
analysts
noted.
“We
typically
see
a
period
of
re-rating
for
2
years
followed
by
trading
at
peak
multiples
for
1-2
years
before
the
growth
cycle
contracts
again,
with
multiple
contraction
happening
as
growth
rates
decelerate,”
they
added.
Though
Goldman
is
“cautious
on
valuations
as
we
approach
2025”
and
“conclude
that
European
defense
stock
valuations
likely
present
more
downside
than
upside
risk
at
this
juncture,”
the
Wall
Street
bank
still
sees
opportunities
in
several
segments
and
stocks.
Stocks
Goldman’s
analysts
said
they
“increasingly
favour
stocks
exposed
to
long-term
secular
growth
themes
with
superior
visibility
on
growth.”
They
highlighted
French
company
Thales
,
which
they
like
for
its
“robust
organic
growth
profile
due
to
its
exposure
to
French
military
spending.”
The
investment
bank
has
a
buy
call
on
stock
at
a
12-month
target
price
of
170
euros
($180.99),
giving
it
7.6%
potential
upside.
Other
stocks
with
an
exposure
to
the
defense
industry
on
Goldman’s
buy-rated
list
include
aerospace
names
Rolls-Royce
Holdings
(also
on
its
“conviction
list”)
and
Airbus
.
Elsewhere
in
the
arms
manufacturing
space,
Goldman
is
optimistic
on
German
company
Rheinmetall
on
the
back
of
its
expectations
of
“a
record
year
for
orders
based
on
our
granular
work
on
the
2024
German
defense
budget.”
The
bank
has
increased
its
12-month
price
target
on
the
stock
by
close
to
60%
to
606
euros,
giving
it
nearly
13.4%
upside
potential.
—
CNBC’s
Michael
Bloom
contributed
to
this
report.