Saab Q3'25: Strong deliveries paired with higher profitability

Q3 was a very good quarter for Saab. The market demand remains strong, and the company’s order intake continues to see the benefits. The company delivered results ahead of our expectations, which supports our view that the business is developing well based on fundamentals. We raise our Q4 and 2025 estimates across most divisions for revenue, along with modest margin lifts, reflecting stronger backlog execution and increased visibility. That said, we believe the current valuation implies more than fundamentals can justify, and we reiterate our Sell recommendation with a target price of SEK 310.

Investment case relies on robust defense sector spending

In our view, Saab’s investment case rests on three pillars. First, continued growth in European and allied defense budgets. Second, disciplined execution on a strong multiyear backlog with improving delivery rates. Third, the ability to convert strategic international opportunities into profitable, cash generative contracts. While the biggest positive driver is sustained order intake paired with excellent project execution across Dynamics, Aeronautics, Surveillance, Kockums, and Combitech, the main near-term risks are delivery delays, fierce competition, and underutilized capacity.

Q3’s revenues and profitability were better than expected  

Saab delivered a solid Q3. Revenue rose ~17% against our ~15% expectation, with a minor currency headwind of roughly 1.1%.  Deliveries were strong across the portfolio. Profitability was above our forecast, helped by seasonally lighter Q3 on costs, favorable mix, and ongoing efficiency gains. Dynamics was not the primary revenue driver this quarter at ~12% revenue growth, yet it posted an outstanding operating margin of ~19% on mix and operational efficiencies. Aeronautics surprised on revenue, clearly beating by far both our estimate and consensus, although operating profitability was not as good. Surveillance landed close to expectations on both revenue and margin, and Kockums and Combitech were broadly in line. Altogether, we believe the quarter suggests the business continues to develop well. The recent hiring push aimed at safeguarding delivery schedules appears to be supporting throughput, while mix and utilization lift margins.

We raise Q4 and full-year 2025 estimates reflecting the new visibility and fundamentals

On the demand side, our Q4 order intake assumption remains unchanged, as the outcome was close to our expectation and we see no shift in sector dynamics. The management has raised 2025 guidance to 20-24% organic growth. Given a seasonally strong fourth quarter and what we view as a viable path to that range, we lift our full-year 2025 revenue to ~20%. Dynamics stays mostly unchanged with slightly lifted EBIT margin, since we already expected a strong year, while we raise Aeronautics, Surveillance, and Kockums to reflect stronger deliveries; Combitech moves modestly higher alongside broader activity. For 2026-34, we make no fundamental changes, limiting adjustments to minor mechanical flow-through from the new 2025 base.

Valuation continues to be stretched and unsustainable

We continue to see challenges with Saab’s valuation. In our view, P/E of 48x and EV/EBIT of 39x for 2025, and P/E of 44x and EV/EBIT of 35x for 2026, are difficult to justify on fundamentals alone. The current phase of strong demand is driving growth and profitability and is clearly creating value, and we expect this momentum to remain robust for at least three to five years. That said, we continue to forecast signs of slowing demand in 2026-27, visible in the order intake relative to prior years (e.g., 2022-24). Even so, we believe the valuation remains very high and well above what we consider acceptable multiples, which are somewhat below half of today’s multiples. On that basis, we view the current valuation as unsustainable, consistent with the stance we took in our initiation report.