欧洲国防：甄选赢家——自助当下，增长未来

European Defense: Picking winners - self-help now, growth later up drivers shouldmattermore. In the ST, we favor self-help stories that can resist sectorheadwinds (Leonardo, Thales). In the LT, we prefer superior growth profiles (Rheinmetall). +4420 7676 6820adrien.rabier@bernsteinsg.com to the US budget, which we expect to be strong even without political support of Trump's$1.5tn budget. It should translate into strong order intake, adding to the Middle-Eastopportunity. Long-term neutral:BAE is a quality compounder, but growth is capped by theportfolio's diversification and optimism is alreadybaked in consensus estimates. +19173448430 +442076767342cyriaque.blanchet@bernsteinsg.com DassaultAviation (Market-Perform,+12%).Short-term neutral:Wedon'texpectfireworks in H1'26.Falcon deliveries appearto havebeen slowin2026andmarginswill be impacted by supply chain challenges. But, we would not be surprised to get theterm neutral: Dassault is cheap despite its resilient growth profile. But we do not see aclear catalyst to trigger the re-rating.Germany leaving the FCAS program could cause STdisruptions,but France needs to program,a LT positive.Airbus could sellits stake (~10%) Specialist SalesJames Brady +4420 7762 5272james.brady@bernsteinsg.com Leonardo(Outperform,+25%).Short-termpositive:Weexpect Leonardotokeepdeliveringbeat-and-raises,andsee the recent dip due to the surprise CEO change as anentry point. Long-term positive:the strong portfolio (electronics, air defense,missiles...)andthe external opportunities (JVs, US budget) can keep driving earnings upgrades. Leonardois the cheapest stock in our coverage(10.6xEV/EBITDA 12-month, vs.sector 12.9x).Webelieve it can continue to re-rate, closer to the sector levels, through execution. Rheinmetall (Outperform,+58%).Short-term positive:We see an asymmetrical riskreward.0urbasecaseisthatRheinmetall reaches its+60%Q226toplinegrowthguidance. If it does, we see scope for the stock to regain partof its premium and trade nearearly-2026 levels. While it is already trading near its floor.Long-term positive: It deratedsharply,with its EV/EBITDApremiumvs.European Defense collapsing from80%to18%,largelyon sentiment (executiondelays,A&D rotation, ceasefire andnewwarfarenarratives)rather than structural change. But its long-term growth profile remains unmatched. Thales (Outperform,+25%).Short-termpositive:Weexpectourtacticalupgradeto materialize in Q2'26.Not because we like the Cyber business (we are still belowconsensus), but because expectations have reset and comps turn sharply negative fromQ2'26onward.Hence,Cyberisunlikelyto drivemeaningful downgrades, which should endthe funding short thesis.Weexpectthecore A&D business tobeat (+5%aboveconsensus).Long-term (post-2027)moretempered:Thales has one of the strongestportfolios,butconsensus baking indefensegrowthtoacceleratetowards12% limitsroomforupgrades. TKMS(Market-Perform,+3%).Short-termpositive:Weexpect strong performancedriven bythe win of a mega submarine order in Canada, enabled by Germany's politicalsupport. And a beat on FY26 targets. Long-term negative: TKMS is a visible turn-aroundstory with a rich backlog. We are above consensus until FY28. But we struggle to justify avaluation premium for an underperformer in a challenging shipbuilding segment. O - Outperform, M - Market-Perform, U - Underperform, NR - Not Rated, CS -Coverage Suspended LDO.IM estimate is Reported EPS; TKMS.GY valuation is EV/EBITDA (x); LDO.IM valuation is Reported P/E (x);Source: Bloomberg, Bernstein estimates and analysis. INVESTMENTIMPLICATIONS WerateLeonardo,Thales andRheinmetallOutperform.WerateBAESystems,Dassault AviationandTKMS Market-Perform We update our models for Dassault Aviation (lower margin forecast for 2026 onward, lower Falcon deliveries in H1'26, PTunchanged) and Thales (increased topline growth for Defense from 2026 onward, lower Cyber topline growth from 2028onward,resulting inourPTupfrom260to290.Targetmultipleunchanged). All about the US budget. BAE Systems derives 45% of sales from the US, and is in a particularly strong position to benefit reconciliationfunding,isarecordincrease.Wedonotexpectsuchabudgetto makeitthroughCongress.But,evenifonlythe"base"2027budget was approved,it would imply stronggrowth ($1.15tn vs.$0.9tn in 2026,+22%).The investment account(addressable market) should grow by a significantly higher rate. BAESystemsmight not bethebestexposedto capturethese opportunities,but willparticipate.It is also exposed to some lessplayers will benefit from large order intake and therefore improved growth for the coming years. pure-plays European companies.We are slightly aboveconsensus forthe coming years (+3% aboveonaverage until 2028)andseethestockaswell positionedtobenefitfrom itsresilientandhigher-qualityprofile.Especially inadifficult EuropeanDefenseenvironment.We believe order intake in the Middle East andthe US will support performance, but startflowing later intheyearWe believe BAE Systems will r