Rating Revision Reflects Strategic Positioning and Valuation Appeal
Bank of America Securities has upgraded Kongsberg Gruppen (OL:KOG) from “Underperform” to “Buy,” simultaneously raising its target price to NOK 404 from NOK 273.20. This dual upgrade stems from the company’s growing relevance in defense portfolios and attractive valuation metrics.
The analysts highlight an emerging “decade of hard power,” anticipating increased global demand for missiles, air defense systems, and defense electronics – all critical components of national sovereignty. Kongsberg’s product portfolio strategically addresses these capability gaps across Europe and worldwide.
Defense Sector Outlook and Kongsberg’s Competitive Advantages
Despite recent underperformance compared to defense peers, Kongsberg presents what analysts consider an attractive entry point for investors shifting focus toward long-term defense themes. The rating revision incorporates revised financial projections, with EBIT estimates for 2025-28 raised by 6-13%.
Valuation multiples were adjusted upward across Kongsberg’s business segments:
- Defense & Aerospace: EV/EBIT target multiple increased to 30x
- Maritime division: Target multiple raised to 20x
- Kongsberg Discovery (NASDAQ:WBD): Target multiple lifted to 24x
- Group discount in sum-of-the-parts valuation reduced from 10% to 5%
Kongsberg Defense & Aerospace: Strategic Growth Driver
Kongsberg Defense & Aerospace (KDA) was specifically highlighted as a “structural winner,” particularly in air defense and missile systems. With NATO members significantly expanding ground-based air defense capabilities to counter modern threats, KDA’s comprehensive portfolio – including radar systems, communications technology, and precision strike capabilities – positions it at the core of future defense strategies.
The division maintained impressive metrics from 2023-24:
- Strong book-to-bill ratios of approximately 2.4x and 2.8x
- Revenue growth of about 19% in both years
Bank of America projects KDA’s book-to-bill ratio will average around 1.8x from 2025-2030, ensuring substantial revenue visibility beyond 2030.
Market Leadership and Strategic Partnerships
Kongsberg’s flagship products – including the Naval Strike Missile, Joint Strike Missile, and National Advanced Surface-to-Air Missile System – face limited competition in Europe. The company’s partnership with Raytheon (NYSE:RTN) provides additional exposure to the U.S. defense budget, further diversifying its revenue streams.
Valuation Appeal
Kongsberg’s 12-month forward price-to-earnings ratio currently shows its sector premium at its lowest level since the Ukraine invasion – approximately 40%. This creates an attractive entry point for investors anticipating:
- Increased focus on air defense and missile systems in late 2025
- Improved visibility into U.S. defense contracts
The combination of strategic positioning, strong order backlog, and attractive valuation metrics underpins the upgrade recommendation, with analysts expecting renewed investor interest in the company’s defense capabilities.
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