Saab Q4'25: More value pulled forward, valuation risk remains

Saab delivered strong results across all divisions in Q4, with full-year 2025 ending on a very solid note, beating both consensus and our expectations. We continue to see demand at a structurally higher level that is unlikely to revert in the foreseeable future. This makes the defense spending outlook stronger, but structurally higher demand only matters if orders can be converted into delivered capabilities on time. As Saab continues to show that it can deliver profitable growth on the increasing order backlog by being proactive when it comes to capacity, we believe that the company is well-positioned to deliver on its updated financial targets and sustain growth. Against that backdrop, we raise our forecasts from 2026 onward. Our revised estimates imply lower downside risk, but we still see the expected return as unattractive due to a high valuation. We raise our target price to SEK 615 (previously SEK 550) and raise our recommendation to Reduce (Sell).

Across-the-board beat strengthens target confidence

Q4 was expected to be strong, but the print still came in well above expectations on many points. Order intake was predictably high given the disclosed awards, yet still ahead of our forecast. Deliveries were solid, driving a quarterly and full- year beat compared to our estimates, led by Dynamics and an upside surprise in Surveillance, while the other divisions also delivered robust revenue growth. Higher volumes also supported a profitability beat for both the quarter and the full-year, despite some offsetting mix and program headwinds. The proposed dividend was lower than we expected, which we think is reasonable given the current investment phase. In all, the across-the-board beat strengthens our confidence in Saab meeting its 2023-27 financial targets, which is now our base case.

Demand runway and execution de-risked, driving estimate revisions

Since the start of 2026, the macro backdrop has shifted in a way that extends and de-risks the European demand runway compared to our initiation assumptions. Sustaining the growth implied by expectations becomes progressively more demanding as each step up requires incremental billions of SEK in products to be produced, integrated, tested, and delivered on time. Still, the strong volumes delivered in 2025 make us more confident in Saab’s ability to meet the incremental delivery run-rate it faces. In addition, management raised its 2023-27 targets, which in our view shows its confidence in deliveries moving forward. Against this backdrop, and with that caveat in mind, we raise our order intake, revenue, and profitability forecasts from 2026 onward, while keeping the margin path a gradual grind upward.

A higher fair value but derating risks caps potential returns

We are confident in the quality of demand and backlog conversion, but valuation is still demanding at ~44-36x P/E and ~35-29x EV/EBIT for 2026-27, respectively, on our estimates. With flat multiples, our growth outlook implies attractive returns compared to our cost of equity over 2027-29. However, since we model an average multiple contraction of ~17% over that period, the expected return remains slightly negative. On our base case, with rising volumes and profitability, we see P/E contracting to 22x by 2030, which is within our acceptable range, but getting there still assumes flawless execution, which limits upside if anything slips. Using a 7.6% WACC, 3% terminal growth, and a 12% terminal EBIT margin, our implied fair value is SEK ~615 per share. On the updated outlook, more value is pulled forward, which makes the valuation look better and less dependent on distant cash flows, and improves the risk-reward. However, the derating risk remains. Long-term fundamentals look structurally strong, but we expect the shares to remain volatile in the near-term, given the defense and geopolitical headline flow.