Morgan Stanley has upgraded Hensoldt, a German defense electronics group, to “equal-weight” from “underweight.” This follows a 23% price pullback from its October peak, bringing the valuation to more reasonable levels. The brokerage also raised its price target to €82 from €78. Germany accounts for 60% of Hensoldt’s revenues, making it sensitive to defense spending trends.

The upgrade reflects a reset in market expectations after Hensoldt’s recent capital markets day. Consensus estimates are now aligning with Morgan Stanley's forecasts for both the short and medium term. The analysts cut fiscal 2025-2027 revenue and adjusted EBIT estimates slightly. They also increased the fiscal 2025 free cash flow estimate significantly, by 57% to €378 million.

The analysts cited Hensoldt’s exposure to rising German defense spending, its pure-play defense positioning, and specialization in air defense equipment as justifications for a premium valuation. The company reiterated its 2030 revenue target of €6 billion, with a more back-end loaded profile than the market expected. Investors will watch for order intake and revenue figures.

Looking ahead, investors will be focused on Hensoldt's ability to meet its revenue targets amidst evolving geopolitical tensions and defense spending priorities. The company's recent capital markets day provided important insights, but the true test will be in execution. The defense sector is generally viewed as a stable area for investment, given the global environment.