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On Tuesday, BofA Securities adjusted its stance on Saab AB (SAABB:SS) (OTC:SAABF), downgrading the defense and security company’s stock rating from Neutral to Underperform. The firm, however, increased its price target for Saab from SEK428.00 to SEK444.00. The revision comes amid concerns about the company’s growth prospects and current valuation.
The analyst from BofA Securities outlined that Saab shows an attractive outlook with a projected topline growth that surpasses the sector average through 2028, with Saab at 16% compared to the sector’s 12.5%. However, the firm expressed reservations about the company’s ability to achieve high teens organic growth between 2025 and 2030, a figure that BofA estimates at approximately 15.5%. The lack of conviction is attributed to two main factors: the weak visibility on Saab’s growth trajectory outside of Sweden and a diversified product portfolio that may experience a slowdown post-2030 in key areas such as Dynamics, Kockums, and Aeronautics, compared to Surveillance.
The valuation of Saab was also a point of contention for BofA Securities, which described it as demanding. Saab’s valuation stands at roughly a 43% premium compared to the sector, based on 2027 enterprise value to earnings before interest and taxes (EV/EBIT) estimates by BofA. Despite an increase in EBIT estimates for 2028-2030 by about 0.-2%, driven by higher topline growth in Dynamics and Surveillance, the firm decided to roll forward its valuation to 2029 estimates, previously set for 2026, reflecting a market focus that is shifting towards 2030.
With approximately 41% of Saab’s sales coming from Sweden, BofA anticipates the country reaching 3.5% defense spending by 2030. This adjustment in the price target to SEK444 coincides with the rating change to Underperform, as BofA Securities recalibrates its expectations for Saab’s performance in the coming years.
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