From Morningstar: 2025-06-06 13:05:00

European and UK defense stocks continue to rise amid talks of peace in Ukraine, with Morningstar analysts raising fair value estimates for key defense companies like BAE Systems. US President Trump warns of retaliation by Putin over a Ukrainian drone mission, while UK Prime Minister Starmer emphasizes the need for increased defense spending.

Morningstar predicts a significant increase in European defense spending, with NATO countries expected to allocate $200 billion for research, development, and military procurement over the next decade. This surge in funding is anticipated to benefit defense contracting firms regardless of the Ukraine conflict’s resolution.

Defense stocks have surged due to escalating global conflicts and fears of rearmament, with German giant Rheinmetall up nearly 200% and UK manufacturer BAE Systems rising over 68% year to date. Analysts speculate on the potential impact of ongoing conflicts on the momentum of defense stocks.

A ceasefire in Ukraine may present medium-term opportunities for defense companies, offering logistical and commercial advantages. Western firms could assist in repairing and maintaining Ukrainian military equipment through increased access during a ceasefire period.

European defense companies are poised for growth as Europe rearms and strengthens political cooperation. Morningstar analysts highlight the impact of tariffs on US defense firms and emphasize the importance of supply chain protection through onshoring. BAE Systems announces manufacturing changes to safeguard its supply chains amidst the UK’s renegotiation of its relationship with the EU. Analyst Muharremi raises fair value estimate for BAE stock to £22.50 after deal. UK defense benefits, but fund still small for Europe’s ambitions. Framework allows non-EU contractors to participate. BAE Systems and Rolls-Royce expected to gain access to funding through new UK-EU security pact. No securities mentioned in article owned by authors.



Read more at Morningstar: What’s Next in the European Defense Stock Rally?