European defense stocks jumped Monday after the leaders of several European governments, the European Union and the North Atlantic Treaty Organization gathered in London on Sunday to discuss ways to rearm the continent faster, reducing reliance on the U.S., and continue to support Ukraine. European companies such as Rheinmetall and BAE Systems reacted to positive remarks from senior officials afterward, signaling a faster, upward trend to defense spending across Europe.

European Defense Sector Is Entering Structural Bull Cycle

1051 GMT - The European defense sector is entering a structural bull cycle with more than 150 billion euros potentially flooding into European defense budgets and arms contracts increasing, AlphaValue analyst Saima Hussain says. Investors are positioning themselves early, expecting long-term gains, she notes. "This is more than just a rally, it's the dawn of a new growth phase for European defense," she says. Her best pick is German engine manufacturer MTU Aero Engines, which is up 1.7% at 339.7 euros. Most European defense groups are rising, with Hensoldt leading the charge up 21.1% at 63.3 euros. Other major companies such as BAE Systems, Rheinmetall, Dassault Aviation and Thales are also higher by double-digit percentages. (cristina.gallardo@wsj.com)

All European Defense Groups Expected to Lift Guidance, But Possibly Not This Year

1149 GMT - All European defense groups should increase their guidance for sales and earnings in the coming years due to rising defense budgets, but it might not happen in 2025, J.P. Morgan analysts David Perry and Lucy Fitzgerald say. Each European country in the North Atlantic Treaty Organization will need to pass its own defense budgets, which often requires parliamentary approval, decide how to spend the extra cash and negotiate contracts with defense companies. "We believe that we will now enter a phase where valuation multiples increase, with earnings upgrades following in time," they say. J.P. Morgan lifted the share price target of the 10 European defense groups it covers, including Babcock International, BAE Systems, Rheinmetall, Thales and Leonardo. (cristina.gallardo@wsj.com)

Talks to Strengthen Europe's Nuclear Umbrella Could Boost French, U.K. Defense Groups

1036 GMT - Talks among European leaders to strengthen Europe's nuclear umbrella could lead to extra orders for French aerospace and defense groups Thales, Safran and Dassault Aviation, all of which are involved in the production of Rafale fighters, Jefferies analysts Chloe Lemarie and Ben Brown say. French President Emmanuel Macron said he is ready to kick off discussions on nuclear deterrence for Europe, as France and the U.K. are the only European countries with nuclear weapons. Lemarie and Brown say that if a plan is put in place, it could lead to France ordering more Rafale fighters or SNLE submarines, produced by Naval Group, in which Thales has a 35% stake. It could also lead to U.K. orders for nuclear-capable submarines produced by BAE Systems, Babcock International and Rolls-Royce, they add. (cristina.gallardo@wsj.com)

Europe's Military Restocking Looks Like a Pan-European Fiscal Priority

1027 GMT - Europe's restocking and recapitalization of its defense industrial base looks like a pan-European fiscal priority, Citi analysts Sam Burgess and Charles Armitage say, following a summit of European leaders in London Sunday. A credible deterrent against Russia would require a very significant recapitalization and re-equipping of European militaries, the analysts note. Defense stocks will be on the rise throughout the week, as markets try to assess governments' future military budgets and the European Commission defense funding plans, they say. The latter are expected to be outlined Thursday. Germany's sensors provider Hensoldt is up 23.6% at 64.75 euros, while Britain's BAE Systems is up 13.2% at 15.91 pounds, and France's Dassault Aviation advances 12.7% at 277.8 euros. (cristina.gallardo@wsj.com)

Rheinmetall Is Clear Front-Runner to Benefit From Europe's Defense Spending Surge

1309 GMT - German defense group Rheinmetall is the clear front-runner in the race to attract additional military spending by European governments, Mwb Research analyst Jens-Peter Rieck says. This is because the joint EU procurement will benefit the few suppliers with the scale to deliver, as Europe has an urgent need for ammunition, tanks, air defense and drones, all of which are Rheinmetall's strengths, he notes. The group's aggressive increase in its production capabilities in recent years has reinforced its leadership, Rieck adds. Last year, Rheinmetall captured around 3% of the 326 billion euros spent on defense by European NATO members, and should be able to raise this percentage in future years, he says. Shares are up 12.3% at 1,130 euros. (cristina.gallardo@wsj.com)

European Defense Stocks Set for Re-Ratings as Military Budgets Soar

1506 GMT - Greater certainty on defense spending trajectories for Rheinmetall and the broader European defense sector should trigger re-ratings in the coming months, HSBC analysts Dario Dickmann and Christoph Dolleschal say. They expect European defense spending to increase to 3% of GDP in 2030, exceeding their previous forecast of 2.5% of GDP in 2030 and 3% in 2035. HSBC increased Rheinmetall's share price target to 1,275 euros per share from 1,000 euros, and reiterated its Buy recommendation. Shares are up 14% at 1,148 euros. (cristina.gallardo@wsj.com)

(END) Dow Jones Newswires

March 03, 2025 10:21 ET (15:21 GMT)

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