Kongsberg Gruppen: Is the Defense Boom Already Priced In?

Kongsberg Gruppen ASA (KOG.OL) has emerged as a focal point in the global defense and maritime sectors, with its stock trading at a trailing P/E ratio of 39.2x as of September 2025—a premium to both its maritime peers and the European Aerospace & Defense industry average of 32.8x [1]. This valuation premium raises a critical question: Is the company’s defense-driven growth already priced into its shares, or does its maritime division’s struggles justify a more cautious outlook?

Defense Division: A High-Velocity Growth Engine

Kongsberg’s defense segment has been a standout performer. For Q2 2025, revenue surged 38% year-on-year to NOK 6.12 billion, fueled by robust deliveries of missiles and air defense systems [2]. A landmark NOK 6.5 billion contract with Germany for Joint Strike Missiles underscores this momentum, while the division’s order backlog now exceeds NOK 109 billion, with NOK 22 billion slated for delivery in the second half of 2025 [3]. Analysts at Morgan Stanley note that geopolitical tensions and rising defense budgets—particularly in Europe—position the division to grow at a 16.4% annualized rate through 2028, reaching NOK 83.8 billion in revenue [4].

This growth is underpinned by strategic investments in production capacity. Kongsberg has expanded facilities in Norway, Australia, and the U.S. to meet surging demand for advanced military technology [5]. With global defense spending projected to hit USD 2.46 trillion in 2024 and the U.S. alone requesting USD 849.8 billion for fiscal 2025 [6], the company’s defense division appears well-positioned to capitalize on long-term tailwinds.

Maritime Division: A Drag on Valuation Realism

Contrast sharply with the defense segment, Kongsberg’s maritime division faces a 60% year-to-date decline in contracting activity, according to Morgan Stanley’s September 2025 analysis [7]. While Q2 2025 saw a 20% year-on-year revenue increase, driven by automation and LNG vessel demand, the division’s book/bill ratio of 1.18 and NOK 26 billion order backlog mask underlying fragility [8]. The integration of Kongsberg Digital’s maritime portfolio, though aimed at enhancing energy efficiency and digitalization, introduces operational risks, including cultural alignment challenges and margin pressures [9].

The maritime sector’s broader struggles are reflected in its P/E ratio of 14.87x—well below Kongsberg’s valuation [10]. This discrepancy highlights a valuation disconnect: investors are paying a premium for defense growth while the maritime segment’s near-term outlook remains clouded by cyclical downturns and regulatory shifts toward decarbonization.

Valuation: Premium Justified or Overextended?

Kongsberg’s current P/E of 39.2x exceeds the U.S. Aerospace & Defense industry’s 34.43x average [11], suggesting a premium for its defense-centric growth narrative. However, this premium must be weighed against the maritime division’s drag. Morgan Stanley’s equal-weight rating acknowledges the defense segment’s strength but cautions that maritime headwinds could limit earnings upside [12].

Analyst forecasts imply optimism: At a 16.4% CAGR, Kongsberg’s defense revenue could reach NOK 83.8 billion by 2028, with earnings projected at NOK 9.2 billion [13]. Yet, these assumptions hinge on sustained defense spending and the ability to offset maritime underperformance. If the maritime division’s challenges persist, the company’s earnings growth could fall short of expectations, potentially justifying a lower multiple.

Conclusion: A Stock Split by Sectors

Kongsberg Gruppen embodies a dual narrative: a high-velocity defense business and a struggling maritime segment. While the former’s growth appears reasonably priced given global defense trends, the latter’s volatility introduces asymmetry. Investors must weigh whether the defense boom’s tailwinds are sufficient to offset maritime risks—a question that will likely determine whether the current valuation holds or corrects.

For now, the stock’s premium reflects a bet on defense resilience. But as maritime headwinds linger, the real test of valuation realism will come in how effectively Kongsberg balances these two worlds.

Source:
[1] Kongsberg Gruppen ASA (FRA:KOZ1) PE Ratio (TTM) [https://www.gurufocus.com/term/pettm/FRA:KOZ1]
[2] Kongsberg Defence & Aerospace sees revenue up 38% in Q2 2025 [https://www.naval-technology.com/news/kongsberg-defence-aerospace-sees-38-revenue-surge-in-q2-2025/]
[3] Kongsberg Gruppen : KOG Quarterly report Q2 2025 [https://www.marketscreener.com/quote/stock/KONGSBERG-GRUPPEN-ASA-1413189/news/Kongsberg-Gruppen-KOG-Quarterly-report-Q2-2025-50464552/]
[4] Does Morgan Stanley's Split-Sector Outlook Reveal a Tipping ... [https://finance.yahoo.com/news/does-morgan-stanley-split-sector-112954336.html]
[5] Earnings call: Kongsberg reports robust Q3 growth, record backlog [https://www.investing.com/news/stock-market-news/earnings-call-kongsberg-reports-robust-q3-growth-record-backlog-93CH-3681168]
[6] Defence Spending and Procurement Trends [https://www.iiss.org/publications/the-military-balance/2025/defence-spending-and-procurement-trends/]
[7] Morgan Stanley’s September 2025 analysis [https://nz.finance.yahoo.com/news/does-morgan-stanley-split-sector-112954336.html]
[8] Kongsberg Gruppen : KOG Quarterly report Q2 2025 [https://www.marketscreener.com/quote/stock/KONGSBERG-GRUPPEN-ASA-1413189/news/Kongsberg-Gruppen-KOG-Quarterly-report-Q2-2025-50464552/]
[9] Kongsberg Groups' Growth and Maritime Business Units ... [https://www.marinepublic.com/blogs/analytics/262872-kongsberg-groups-growth-and-maritime-business-units-2025]
[10] PE ratio by industry [https://fullratio.com/pe-ratio-by-industry]
[11] U.S. Aerospace & Defense Industry Analysis [https://simplywall.st/markets/us/industrials/aerospace-and-defense]
[12] Does Morgan Stanley's Split-Sector Outlook Reveal a Tipping Point for Kongsberg Gruppen? [https://finance.yahoo.com/news/does-morgan-stanley-split-sector-112954336.html]
[13] Morgan Stanley’s September 2025 analysis [https://finance.yahoo.com/news/does-morgan-stanley-split-sector-112954336.html]