Stricter Climate Policy And Tech Rivals Will Shatter Defense Stability

Key Takeaways

• Elevated regulatory, ethical, and geopolitical pressures threaten Saab's ability to secure major contracts and compress profitability across global defense markets.
  
• Market share and earnings stability are at risk due to technological disruption by competitors and volatility from dependence on large government contracts.
  
• Rising defense demand, production expansion, and focused innovation position Saab for sustained growth, stable earnings, and increased competitiveness in evolving global military markets.

Catalysts

Provides products, services, and solutions for military defense, aviation, and civil security markets Internationally.

• The increasing regulatory burden driven by global climate policies and international agreements on emissions is likely to force Saab into higher compliance costs, while simultaneously restricting exports of defense platforms, which could compress net margins and reduce future revenue growth as environmentally conscious governments become less willing to approve arms contracts.
  
• The rising tide of social and ethical scrutiny around defense manufacturers-fueled by public concern over weapons proliferation and humanitarian impact-threatens Saab's long-term ability to secure major contracts, especially in democratic nations, posing a material risk to top-line growth as procurement cycles become politically unpredictable.
  
• Saab's heavy reliance on large, lumpy government contracts leaves its earnings base exceptionally volatile; potential delays or cancellations of mega deals-whose timing is dictated by complex parliamentary and government approval processes-make future revenue streams and order backlogs difficult to forecast reliably, undermining long-term earnings stability as order flow may dry up unexpectedly.
  
• Rapid advances in autonomous and unmanned defense technologies by larger global competitors and new entrants could outpace Saab's current R&D and automation efforts, risking obsolescence of key platforms and sensors, and ultimately leading to loss of market share and declining profitability as high-value contracts shift to more technologically advanced rivals.
  
• The rise of protectionist policies, deglobalization, and tightening export controls could increasingly limit Saab's access to key international growth markets such as the U.S., India, and other fast-growing regions, directly stifling top-line expansion and undermining the diversification needed to offset weaker demand in core Scandinavian and European markets.

Saab Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Saab compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Saab's revenue will grow by 15.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.4% today to 8.4% in 3 years time.
• The bearish analysts expect earnings to reach SEK 9.1 billion (and earnings per share of SEK 17.27) by about August 2028, up from SEK 5.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.5x on those 2028 earnings, down from 52.7x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 51.6x.
• Analysts expect the number of shares outstanding to grow by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.71%, as per the Simply Wall St company report.

Saab Future Earnings Per Share Growth

Risks

• Heightened geopolitical tensions, major defense spending increases across NATO and Europe, and long-term commitments to higher military budgets are likely to sustain robust demand for Saab's defense technologies, which can drive revenue growth and support long-term earnings expansion.
  
• Accelerated investment in production capacity-both through automation and international facilities-combined with a strong innovation pipeline in AI, autonomous systems, and next-generation fighter aircraft, positions Saab to take share in emerging military modernization cycles, benefitting both future revenue and margins.
  
• Saab's backlog is growing, with a diverse customer base and a high book-to-bill ratio, indicating persistent demand and strong order intake, which serves as a solid foundation for multi-year revenue visibility and reduces short-term financial volatility.
  
• Strategic collaborations and M&A-particularly in expanding international markets and deepening partnerships for high-value defense platforms like GlobalEye and underwater autonomous systems-can unlock new sources of income and accelerate profit growth through enhanced market access and technological leadership.
  
• The industry's structural emphasis on digitalization, cybersecurity, and the transition toward greener, more efficient defense solutions is closely aligned with Saab's areas of targeted investment and R&D, offering opportunities for higher-margin offerings and sustained profitability growth over the long run.

Valuation

• The assumed bearish price target for Saab is SEK374.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Saab's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK600.0, and the most bearish reporting a price target of just SEK374.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK108.9 billion, earnings will come to SEK9.1 billion, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 5.7%.
• Given the current share price of SEK510.0, the bearish analyst price target of SEK374.0 is 36.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.