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Investing.com - Morgan Stanley (NYSE:MS) upgraded Indra Sistemas (BME:IDR) SA (BME:IDR) (OTC:ISMAY) from Equalweight to Overweight on Friday, more than doubling its price target to EUR47.00 from EUR21.50.
The upgrade comes as the Spanish defense and IT services company is expected to benefit from strong defense sector tailwinds while maintaining resilient performance in its core IT Services business. Morgan Stanley forecasts Indra will deliver approximately 8% organic total revenue compound annual growth rate (CAGR) between FY24-27, reaching 10% when including mergers and acquisitions.
The investment bank projects this topline growth, combined with modest margin expansion, will support approximately 13% earnings per share CAGR from FY24 to FY27. Morgan Stanley highlighted that 50% of Indra’s targeted FY26 organic defense revenue is already contractually committed, providing high revenue visibility.
The firm updated its discounted cash flow framework for Indra, lowering its assumed weighted average cost of capital to 9% and increasing its mid-term growth assumption to 4% FY29-35 CAGR from 2% previously. Morgan Stanley also raised its terminal EBIT margin assumption to 13%, more closely aligning with European aerospace and defense peers.
At the new price target of EUR47.00, Indra would trade at approximately 20 times CY26 adjusted price-to-earnings ratio, which Morgan Stanley views as "compelling for the defensive earnings growth on offer" given the company’s current valuation of about 15 times CY26 adjusted P/E.
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