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Investing.com -- Kepler Capital has upgraded Thales to Buy from Hold, lifting its target price to €315 from €240, citing strong earnings visibility and a valuation discount relative to peers despite the group’s solid fundamentals.
Shares in the French defence and aerospace group rose 4% in Paris.
The broker said Thales is on track to meet or exceed its five-year organic sales growth target of 5-7%, supported by incremental margin targets that imply an 8-12% EBIT CAGR and an 8-10% adjusted EPS CAGR, with free cash flow (FCF) conversion above 100%.
The new target price is based on a 30x P/E from Kepler’s discounted cash flow (DCF) model, using an 8.2% weighted average cost of capital (WACC) and 2% terminal growth, backed by peer multiples.
“Despite this solid, high-margin organic growth, the stock trades at a discount to its defence, aerospace, and cyber & digital peers,” analyst Aymeric Poulain wrote. He added that Thales offers a secure low-double-digit earnings growth trajectory with positive optionality.
Poulain pointed out that the discount stems from a conglomerate structure, exposure to France’s sovereign risk premium, and underwhelming performance in parts of the digital business.
However, he believes these risks are largely priced in, while the durability of high returns on invested capital is not fully reflected in the share price.
Defence continues to beat expectations, Space could benefit from ongoing merger talks, and Cybersecurity is expected to recover to double-digit growth from 2026.
In the analyst’s view, Thales’ “hybrid technology-based portfolio is one of the most dependable compounding machines in the A&D sector.”
Defence, which represents more than half of group sales, is benefiting from the European rearmament cycle, while aerospace offers cyclical upside and cyber & digital is set to regain momentum following integration setbacks.
Poulain acknowledged risks tied to political instability in France, the complexity of Thales’ portfolio, and the need to prove the merits of recent acquisitions. Yet he sees catalysts in a cyclical aerospace recovery, restructuring in Space, and improving performance from the Imperva deal.
“Defence is outperforming; the Space turnaround could be fast-tracked by merger discussions; and Cybersecurity is set to return to double-digit growth,” he wrote.