On Tuesday, BofA Securities adjusted its stance on Saab AB stock, a Swedish aerospace and defense company, by changing its stock rating from Buy to Neutral. Accompanying this change, the firm also revised its price target for Saab AB, lowering it to SEK240.00 from the previous target of SEK265.00. The new rating and price target reflect the firm's reassessment of the company's future performance and market position.
BofA Securities highlighted Saab AB's impressive track record over the past two years, noting its superior performance in terms of order intake and top-line growth within its industry cluster.
However, the firm anticipates challenges ahead, projecting that 2024 will set a high benchmark that may be difficult for Saab AB to surpass in the following year. Expectations are for a deceleration in top-line growth through to 2027, with order intake likely peaking in 2024.
The defense company's strategic decision to increase its workforce by approximately 1,500 hires in the first half of 2024 is seen as a double-edged sword. While this move is intended to sustain growth, BofA Securities suggests it could also exert pressure on the company's profit margins.
This potential squeeze on profitability is expected to influence investor sentiment and could lead to a reevaluation of Saab AB's stock multiples as the market heads into 2025.
In light of these considerations, BofA Securities has revised its earnings per share (EPS) estimates for Saab AB downwards by about 4-7% for the years 2024 through 2026.
Furthermore, the firm has adjusted its target multiples for 2025-26 to 21 times price-to-earnings (PE) and 18 times enterprise value to earnings before interest and taxes (EV/EBIT), a slight decrease from the previous 22 times PE and 18.5 times EV/EBIT. This recalibration of expectations is due to the anticipated slowing momentum in Saab AB's business activities.
The revised price objective and the shift to a Neutral rating from BofA Securities come as the firm assesses the potential impacts of Saab AB's growth strategy on its future financial performance.
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