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Investing.com -- Bernstein initiated coverage on ThyssenKrupp Marine Systems (TKMS) with an Underperform rating and a €74 price target, following the company’s spin-off from ThyssenKrupp on October 20.
Analyst led by Adrien Rabier said the stock, which gained about 35% on its first day of trading, is “an underperformer in a challenging segment, priced like a winner.” The stock gained an additional 6% on Tuesday.
The team sees TKMS as well placed within Germany’s booming defense sector and benefits from a strong order backlog worth eight times annual sales.
About half of its revenue comes from Europe and 25% from Germany, positioning it as a national champion in non-nuclear submarines and mid-scale combat ships.
“We are optimistic about TKMS’ ability to turn the business around and benefit from better underlying trends,” the analysts wrote. However, they see the stock’s valuation as stretched after its debut.
The team highlighted that TKMS’ turnaround is underpinned by improved pricing power, contracting discipline, and a shift to more profitable orders. The company’s EBIT margin is projected to expand from 2% in 2022 to 8% in 2028, approaching industry standards.
Analysts expect sales to grow at an 11% compound annual rate through fiscal 2028 (FY28), supported by submarine and surface vessel programs, including a potential “mega German contract.”
Still, they cautioned that shipbuilding remains “a slow, low-profitability segment with high execution risk,” arguing that TKMS should trade at a discount to other European defense stocks.
“We value TKMS at a -25% discount to EU defense, close to naval peers, on 2029 discounted EBITDA,” the analysts said, estimating the company’s fair value at €4.5 billion, versus a market capitalization of €5.1 billion after its debut.
“We acknowledge the technical support for a small stock in a booming sector. But, we expect to get a better entry point, as it comes back to reality and normalizes at lower levels," they noted.
The analysts also pointed to concerns over “limited initial disclosure” ahead of the company’s first report in December and warned that expectations could normalize as the market reassesses fundamentals.
While TKMS’ €18 billion backlog and exposure to long-cycle naval projects provide visibility, Bernstein believes the stock’s premium valuation leaves little room for upside in the near term.