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Investing.com -- European defense stocks have fallen roughly 11% from their 2026 peaks even as earnings estimates for the sector have continued to rise, with the first quarter expected to bring little relief as seasonal weakness and negative cash flows cloud the near-term picture, Barclays said in a note dated Wednesday.
The sector has still outperformed the broader STOXX Europe 600 index year-to-date, up 16% against the benchmark’s 4% gain, with consensus earnings estimates revised up 7-9% compared with 4-5% for the wider market, according to Barclays Research.
"1Q is seasonally weak, so we expect little surprises," Barclays analysts said, flagging that the quarter is typically marked by lower profits and negative free cash flow across covered names.
Rheinmetall, rated “overweight” with a €2,125 price target, is forecast to report €253 million in operating profit for the quarter, up 27% year-on-year, though analysts cautioned that consensus figures "is still messy" given tough comparables from early 2025 when earlier-than-planned deliveries inflated the base.
Shares in Rheinmetall trade at about 12.6 times 2028 estimated EV/EBIT, a discount of over 15% to the sector average, despite consensus forecasts for earnings per share growth of more than 40%.
The group is expected to report free operating cash flow of minus €150 million for the first quarter, compared with a positive 266 million euros a year earlier, reflecting in part a €1.35 billion payment related to the NVL naval acquisition booked during the period. Results are due on May 7.
Leonardo, also “overweight” at a €74 price target, is expected to report €248 million in adjusted EBITA for Q1, on revenue of €4.39 billion, representing 10% organic growth.
Barclays sits 4% ahead of consensus on full-year 2026 EBITA at €2.19 billion, partly reflecting the consolidation of Iveco Defence from April 1. Leonardo reports a trading update May 5.
Hensoldt, rated “equal weight” with a €95 target, is forecast to deliver group adjusted EBITDA of €49 million in Q1, up 63% year-on-year, driven by Optronics recovery and easier comparisons in Sensors following logistics disruptions in early 2025.
Order intake is seen at around €1.05 billion, roughly 2.3x book-to-bill, supported by a contract worth more than €400 million from KNDS.
QinetiQ, “overweight” at 540p, faces a cautious read-through from the delayed release of the UK’s Defence Investment Plan.
Barclays forecasts full-year revenue of £1.92 billion against consensus of £1.93 billion, with operating profit of £213 million and an 11.1% margin. The company reports full-year results May 21.
Saab, rated “underweight” at SEK 515, is forecast to generate Q1 revenue of SEK 18.96 billion and EBIT of SEK 1.65 billion, with the quarter typically contributing only around 17-22% of full-year profit. Free cash flow is expected to remain negative through the first nine months of the year.
Thales, also “underweight” has had its price target raised to €270 from €260 to reflect foreign exchange-driven earnings upgrades.
Barclays models Q1 revenue of €5.12 billion, implying 5.5% organic growth, below the company’s full-year guidance range of 6-7%. Thales reports Q1 revenue April 21.