Leonardo remains special watch with Iran war, Citi raises price target

(Il Sole 24 Ore Radiocor) - Leonardo in Piazza Affari (FTSE MIB) just below par, after performing well on the eve of the day, with the warming of the war in the Middle East generally rewarding defence stocks. Citi has decided to raise its target price to €60 from the previous €48.40 on Leonardo. The business house confirms the Neutral rating. Going into detail, following the 2025 results and in view of the Business Plan update (on 12 March), 'we update our profit forecasts by 7-8%, increasing cash conversion to around 90%'.

According to Borker, 'our updated estimates reflect an increase in Eurofighter deliveries, 5% sales growth in the Helicopters segment, and the development of Aerostructures due to increased 787 deliveries. We also expect higher Free Cash Flow (FCF), supported by higher customer advances on expected order flows, in a context of increasing European defence spending." Among other things, Leonardo UK has just been awarded a £1 billion contract to supply new medium helicopters to the UK Royal Air Force.

The increase in the target price is "driven by a 9% increase in medium-term forecasts, higher cash generation expected in the 2025-2030 period and the time value of money. Our updated estimates reflect increased Eurofighter deliveries, 5% sales growth in the Helicopters segment and Aerostructures development due to increased 787 deliveries. We also expect higher Free Cash Flow (FCF), supported by higher customer advances on expected order flows, in a context of rising European defence spending," the analysts write in a report. They also point out that 'our assessment is primarily driven by growth in operating profit and cash conversion. We expect a profit CAGR of around 9 per cent over the period 2026-2031, with cash conversion around 90 per cent. A 10 percentage point change in cash conversion affects fair value by about EUR 6 per share, while a 1% change in earnings growth changes fair value by about EUR 2.5 per share."

Analysts believe the estimated Cagr of around 9% 'is reasonable', considering the expected single-digit growth in procurement budgets in Leonardo's main markets. Finally, the business house points out, the current share price reflects a '2030-2035 ebit Cagr of around 9%, in line with expected growth in defence budgets in Italia and the UK, Leonardo's main markets'.