Saab AB: A Strategic Play in Defense Modernization Through Recurring Contracts and Modular Innovation

The global defense sector is undergoing a seismic shift, driven by rising geopolitical tensions and the urgent need for modernized military equipment. Among the companies best positioned to capitalize on this trend is Saab AB (SAAB.ST), a Swedish defense giant with a proven track record of delivering scalable, modular systems to NATO-aligned nations. Recent contracts—most notably a 900M SEK combat boat order and a 1.5B SEK RBS 70 NG air defense deal—highlight Saab's ability to secure recurring revenue streams while maintaining technological leadership. This article argues that Saab is a high-potential investment play in a sector primed for growth, with geopolitical tailwinds and a robust order backlog fueling its ascent.

The Combat Boat Order: A Blueprint for Recurring Revenue

Saab's 900M SEK contract for 22 CB90 Next Generation combat boats, booked in Q2 2025, exemplifies its strategy of securing framework-driven, long-term defense agreements. These vessels, produced at Saab's Docksta shipyard, are modular platforms capable of adapting to diverse missions—from coastal patrols to anti-surface operations—thanks to their shallow-draft design (19.4m hull, 0.9m draft) and speeds exceeding 40 knots.

What's critical for investors:
- Recurring demand: Sweden ordered 10 additional boats in 2024, and the Docksta shipyard has delivered hundreds of CB90s globally since the 1980s. This reflects a repeatable sales model with export markets in over 100 countries, including Poland, Colombia, and Lithuania.
- Geopolitical relevance: With Sweden's NATO membership (2024) and heightened Baltic Sea tensions, these boats are a cornerstone of regional deterrence. The contract's staggered delivery timeline (extending into the late 2020s) ensures stable cash flows for years.

The RBS 70 NG Contract: Proven Technology in High Demand

The 1.5B SEK RBS 70 NG deal, also booked in Q2 2025, underscores Saab's dominance in short-range air defense systems. This man-portable system, capable of engaging aircraft, drones, and missiles at ranges up to 9km, has seen combat success in Ukraine since 2023. Key takeaways:
- Combat-proven reliability: Over 20 countries, including Lithuania and Latvia, have procured the RBS 70 NG, with recent orders (e.g., Lithuania's $2.2M missile purchase in May . This reflects a repeatable sales model with export markets in over 100 countries, including Poland, Colombia, and Lithuania.
- Geopolitical relevance: With Sweden's NATO membership (2024) and heightened Baltic Sea tensions, these boats are a cornerstone of regional deterrence. The contract's staggered delivery timeline (extending into the late 2020s) ensures stable cash flows for years.

The RBS 70 NG Contract: Proven Technology in High Demand

The 1.5B SEK RBS 70 NG deal, also booked in Q2 2025, underscores Saab's dominance in short-range air defense systems. This man-portable system, capable of engaging aircraft, drones, and missiles at ranges up to 9km, has seen combat success in Ukraine since 2023. Key takeaways:
- Combat-proven reliability: Over 20 countries, including Lithuania and Latvia, have procured the RBS 70 NG, with recent orders (e.g., Lithuania's $2.2M missile purchase in May 2025) signaling strong international demand.
- Modular scalability: The system integrates seamlessly into vehicle platforms (e.g., Sweden's MSHORAD program) and naval systems, offering flexibility for clients. Deliveries begin in 2027, further extending Saab's order backlog.

Saab's stock has risen ~30% since 2023, reflecting investor confidence in its defense modernization plays. Historically, a strategy of buying Saab shares on quarterly earnings announcement dates and holding for 20 trading days has yielded an average return of 23.73% from 2020 to 2025, according to backtesting. This underscores the stock's positive market reaction to its financial milestones, further supporting its investment case.

Why Now? Geopolitical and Technological Tailwinds

1. Regional insecurity: Sweden's NATO accession and Russia's assertiveness in the Baltics have created a “build or buy” imperative for Nordic and Baltic nations. Saab's local production and interoperable systems position it as a preferred partner.
2. Global military modernization: The $296B global naval spending forecast by 2030 and rising air defense budgets (e.g., U.S. MSHORAD programs) align with Saab's product portfolio.
3. Technological differentiation: Saab's focus on modular designs and technical transfer programs (e.g., Peru's knock-down kit model) reduces costs and expands market reach, improving margins.

Order Backlog and Financial Health: A Fortress Balance Sheet

Saab's Q2 2025 contracts add to an already robust order backlog. Combined with the 1.3B SEK Torped 47 order (for submarine-launched torpedoes), the company's production timelines stretch into the late 2020s. This provides:
- Revenue visibility: Steady cash flows reduce execution risk, a key consideration for investors in defense equities.
- Margin expansion: Modular systems and export sales leverage Saab's R&D investments, potentially boosting EBIT margins beyond its 2024 target of 9-11%.

Investment Considerations: Risks and Opportunities

Bull Case:
- Saab's recurring contracts and geopolitical tailwinds position it to outperform peers like BAE Systems (BA.L) or Lockheed Martin (LMT).
- A $296B naval spending boom and U.S. MSHORAD programs could drive further orders.
- Historical performance: The stock's 23.73% average return in the 20 days following earnings announcements (2020–2025) highlights its upside potential during key financial milestones.

Bear Case:
- Defense budgets could face cuts if geopolitical risks subside.
- Supply chain delays (e.g., semiconductor shortages) could disrupt production timelines.
- Risk metrics: While the strategy's Sharpe ratio of 0.13 suggests moderate risk, its -38.48% maximum drawdown underscores volatility during adverse market conditions.

Valuation Check:
At a P/E ratio of 25x (vs. 20x for BAE Systems), Saab trades at a premium, reflecting its growth prospects. However, its order backlog and margin trajectory justify this premium—if executed successfully.

Conclusion: Saab AB – A High-Potential, Geopolitically Leveraged Play

Saab's Q2 2025 contracts are more than just revenue wins; they're proof of its strategic moat in modular, repeatable defense solutions. With geopolitical risks elevated and global modernization spending surging, Saab is poised to capitalize on a multiyear growth cycle. While risks exist, the combination of stable cash flows, technological leadership, and geopolitical tailwinds makes Saab a compelling investment in the defense sector.

Recommendation: Consider adding Saab to a diversified portfolio with a 12-18 month holding period, especially if geopolitical tensions persist or NATO defense budgets expand. Monitor order backlog updates and margin trends for further catalysts.

The defense sector's future is modular, and Saab is building it.