BofA double downgrades Renk on ’full valuation’

June 10, 2025 11:25 PM AEST | By Investing

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BofA double downgrades Renk on ’full valuation’ — Image source: Kalkine Media

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Investing.com -- Bank of America (NYSE:BAC) double downgraded German defense supplier Renk Group to Underperform from Buy, citing a full valuation after a significant rally in its shares.

BofA set a new target of 73 euros for Renk, up from 58.5 euros previously, but below Renk’s current price of 78.60 euros.

Renk’s shares have surged approximately 329% year-to-date, significantly outperforming the broader defense sector, which is up around 101% excluding Renk.

While BofA acknowledges Renk’s strong growth outlook through 2030, with estimated annual sales growth exceeding 17% between 2025 and 2030, it believes much of this positive sentiment is already reflected in the stock’s price.

“We see Renk’s valuation full and we don’t believe Renk can sustain a 33% premium since we don’t see scope for more than €3bn sales by 2030 or margins above 22%,” analysts at BofA said.

“We see limited earnings upgrades into second half of this year as Renk does not have significant exposure to defence electronics,” analyst added.

Renk’s own guidance for 2030 sales is between 2.5 billion and 3 billion euros, including mergers and acquisitions.

Renk trades at a roughly 33% premium compared to the sector based on 2027 enterprise value to EBIT estimates.

The bank expects the market to increasingly favor defense companies with strong exposure to defense electronics, air defense, and missile capabilities in the second half of 2025, moving away from "shorter cycle/land exposed assets" like Renk.

Despite the downgrade, BofA did increase its 2025-2030 earnings estimates for Renk by 0-11%, citing higher growth expectations in its VMS (Vehicle Mobility Solutions) and M&I (Marine&Industrial) segments, along with improved margins in VMS.

The brokerage also raised its target multiples, rolling forward its valuation to 2030 to align with market focus.

Renk had seen a period of weakness in late 2024 due to management changes and concerns about margins, but a strong Q4 pre-release and an increased stake by KNDS in February helped drive its recent stock performance.

This article first appeared in Investing.com

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