RBC Capital sets Chemring stock Outperform, targets GBP5.00

On Monday, RBC Capital Markets initiated coverage on Chemring Group Plc (LON:CHG:LN) (OTC: CMGMY), issuing an Outperform rating and setting a price target of GBP5.00 for the company’s shares. The defense contractor, currently valued at $1.43 billion, has demonstrated impressive financial strength with a robust gross profit margin of 67.36%. Chemring, recognized as one of the few Western manufacturers of high-explosives, is positioned to benefit from the ongoing NATO rearmament cycle, particularly through its Energetics businesses.

The optimism from RBC Capital Markets stems from Chemring’s robust financial projections, which include an 8% and 12% compound annual growth rate (CAGR) in sales and adjusted earnings per share (EPS) from fiscal year 2024 to 2030, respectively. This outlook aligns with the company’s current momentum, having achieved a 34.93% year-to-date return. Notably, analysts expect a significant increase in growth starting from fiscal year 2026, supported by Chemring’s record group order book. InvestingPro analysis reveals several additional growth indicators and financial health metrics that subscribers can access.

The defense contractor’s growth prospects are not solely organic; RBC Capital notes that potential incremental capacity expansions and strategic mergers and acquisitions could provide additional momentum. These possibilities are reflected in an upside case price target of 600p.

In terms of valuation, Chemring’s shares are currently trading at 19 times the calendar year 2025 estimated price-to-earnings (PE) ratio, which is forecasted to decrease to 14 times by calendar year 2027. The price target of 500p implies a PE ratio of 24 times for calendar year 2025, aligning it with the average valuation of the European defense sector.

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