Proactive Investors - Rolls-Royce Holdings PLC (LON:RR) and BAE Systems (LON:BAES) were among the defence and aerospace stocks given upgraded targets by Deutsche Bank (ETR:DBKGn) on Friday.
On defence, the bank's analysts see geopolitical conflicts continuing to support the sector in 2024.
"Industry fundamentals remain strong, with good visibility and improved execution," the analysts said, though short-term disruption is possible due to protracted budget negotiations in the US and in Germany. #
But the US presidential elections at the end of next year "could have a profound impact" if a Trump victory revives discussion of a US exit from NATO and accelerates European defence investment.
BAE, Thales and Leonardo are all seen as stocks that stand out for the potential of shares to re-rate higher, as the bank raised share price targets on all defence stocks it covers.
BAE's target was hiked to 1,290p from 1,220p, versus the last close at 1,019p,as the analysts said its fundamental demand remains strong across markets, with 2024 well positioned for a strong start and completion of the Ball Aerospace acquisition due soon.
"We see the company as remaining on a solid growth path, with strong execution and the ability to deliver circa 10% EPS growth per annum until the end of the decade."
Deutsche does not expect the current US defence-budget stalemate to impact the outlook before spring and remains hopeful of a resolution before then.
As for Rolls, the engine maker's recent capital markets event included medium-term guidance that was better than expected.
Taking account of future expectations on the valuation, the bank increased its share price target to 400p from 310p, versus the shares last close price of 286.2p.
The target for BAE suggests potential upside of just over 25%, while for Rolls it is nearer 40%.
Elsewhere Airbus was upgraded to 'buy' from 'hold', while there were downgraded for MTU Aero Engines and Safran (EPA:SAF) to 'hold' from 'buy'.