Goldman starts coverage on EU defense, aerospace: BAE, Airbus among top picks

[lingriiddd]

Goldman Sachs has launched coverage of European defense and aerospace stocks, arguing that the two sectors are entering powerful investment cycles, albeit from different drivers.

The bank highlights record demand for civil aircraft and a structural rearmament push in Europe, while emphasizing that investors must remain selective given high valuations.

In aerospace, Goldman sees aftermarket strength persisting as airlines continue to refleet. The analysts said the sector is still in a “harvest period” with pricing power underpinned by strong demand for maintenance, repair and overhaul and a large fleet of legacy engines.

Supply chain pressures are easing, with engines now the main bottleneck.

Airbus was initiated with a Buy rating and a €230 target. “We believe Airbus’ current valuation represents a compelling entry point, given the mid-term outlook,” analysts wrote.

Safran, Rolls-Royce and Melrose were also rated Buy, with the broker citing underestimated revenue growth for Safran , upside risk from civil aero margins and power systems at Rolls-Royce, and a cash-flow inflection at Melrose .

MTU Aero was initiated at Neutral, with Goldman judging its valuation as stretched versus peers.

Goldman added that with no major new aircraft programs expected before the late 2030s, the sector is increasingly being viewed as a “cash-return story,” with companies such as Safran, Rolls-Royce and Airbus well placed to boost dividends and buybacks.

On defense, Goldman argues Europe is experiencing its largest rearmament cycle since the Cold War. The shift is being driven not only by Russia’s invasion of Ukraine but also doubts over U.S. security guarantees.

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European NATO members are expected to reach ~3% of GDP in defense spending by 2030, up from 2% in 2025, with procurement taking a bigger share of budgets.

“We are constructive on the sector, though high valuations demand a selective approach,” the analysts wrote.

“Geopolitics remains a key sector driver, and we believe announcements on the U.S. force posture in the Autumn could accelerate European defence spending intentions and act as a further catalyst for re-rating,” they added.

Goldman noted that spending is not evenly distributed, with Eastern and Nordic nations such as Poland and the Baltics already close to or above NATO’s 3.5% target, while Western economies like the U.K. and France face tighter fiscal constraints.

Germany, it said, has both the political will and fiscal headroom to drive transformative procurement.

Among defense names, BAE Systems is Goldman’s top pick, initiated at Buy with a 2,270p target, citing strong cash conversion and cross-domain capability.

Rheinmetall also received a Buy, with analysts highlighting its alignment to Europe’s capability gaps and German fiscal strength.

Leonardo and RENK were started at Neutral, while Thales and Dassault Aviation were rated Sell, reflecting concerns about cyber, digital and civil exposure at Thales and a cautious outlook for Dassault’s business jet segment.

Goldman added that venture capital-backed defense start-ups are injecting innovation in drones, electronic warfare and software, but large incumbents remain central.

In aerospace, it sees rising Asian demand and shareholder returns from cash-rich players as further support for the sector.

[jacson4]

Aerospace demand remains sky-high ️ Aftermarket strength + refleet cycle = strong tailwinds

[Nahid10]

Defense sector boost from Europe’s rearmament push Clear structural drivers in play.