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Investing.com - Kepler Cheuvreux upgraded Thales SA (EPA:HO) (OTC:THLEF) stock rating from Hold to Buy on Thursday, while significantly raising its price target to EUR315.00 from EUR240.00.
The French defense and technology company is on track to meet or exceed its five-year organic sales growth target of 5-7%, according to Kepler Cheuvreux’s analysis. The firm notes that Thales’ incremental margin targets suggest an 8-12% EBIT CAGR and an 8-10% adjusted EPS CAGR, assuming the tax rate rises from 20% to 22%.
Despite this solid high-margin organic growth potential and strong free cash flow conversion ratios above 100%, Kepler Cheuvreux points out that Thales stock trades at a discount to its defense, aerospace, and cyber & digital peers.
The research firm attributes this discount to three main factors: sensitivity to France’s risk premium, a conglomerate discount due to Thales’ wide range of technologies, and digital acquisitions that have not yet delivered expected returns.
Kepler Cheuvreux believes these risks are already priced in, while the defensive nature of Thales’ portfolio and durability of its high ROIC growth are not fully reflected in the current valuation, noting that the defense segment is outperforming, potential merger discussions could accelerate the Space division’s turnaround, and Cybersecurity is positioned to return to double-digit growth.
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