Saab's Strategic Position in the European Defense Boom and Its Attractive Valuation for Long-Term Investors

The European defense sector is undergoing a seismic transformation. From the shadow of Russia's invasion of Ukraine to the EU's aggressive modernization agenda, the continent is redefining its security priorities. At the center of this shift is Saab AB, a Swedish defense stalwart that has leveraged geopolitical tailwinds, innovation, and a surge in sovereign-driven spending to outperform peers and the broader market. For long-term investors, Saab's combination of robust financials, a dominant order backlog, and a compelling valuation presents an opportunity to capitalize on a structural re-rating of the defense sector.

Defense Sector Tailwinds: A Perfect Storm of Geopolitical and Policy Drivers

The EU's Readiness 2030 initiative and NATO's push for a “wartime mindset” have catalyzed a defense spending boom. European countries are now allocating record sums to modernize militaries, with defense budgets projected to rise to 3.2% of GDP by 2030 and 3.5% by 2032. Germany, Poland, and the UK are leading the charge, with Germany alone committing €500 billion to defense and infrastructure. This spending is not merely a response to immediate threats but a strategic pivot toward self-reliance, reducing dependence on U.S. systems and fostering European technological sovereignty.

Saab is uniquely positioned to benefit. Its products—from the RBS 70 NG air defense system to the Gripen E fighter jet—align with the EU's focus on next-gen capabilities. The company's recent $2.9 billion support contract for the Gripen E in Sweden and a landmark deal with France for GlobalEye AEW&C aircraft underscore its role in replacing U.S. systems with European alternatives. These contracts are not one-offs; they reflect a broader trend of sovereign-driven procurement.

Financial Outperformance: A Model of Growth and Discipline

Saab's financial performance in 2025 is nothing short of extraordinary. The company reported 32% organic revenue growth in Q2, with EBITDA margins expanding to 14.3% and EBIT rising 49% year-over-year. These metrics outpace its peers and highlight Saab's operational efficiency. Its order backlog of SEK 189 billion (74% international) ensures sustained revenue visibility, while its shift to recurring revenue models—such as long-term support contracts—adds stability.

What's particularly striking is Saab's ability to innovate while maintaining profitability. The company's R&D investments in AI-driven command systems, autonomous naval platforms, and modular air defense solutions position it as a leader in the digital transformation of warfare. This innovation is not theoretical; Saab's swarming drone program transitioned from concept to deployment in under a year, a testament to its agility.

Competitive Advantages: Innovation, Global Footprint, and Strategic Partnerships

Saab's competitive edge lies in its ability to marry technology with geopolitical strategy. While peers like Rheinmetall and Leonardo focus on land systems and traditional munitions, Saab has carved out a niche in air and electronic warfare. Its partnerships with countries like Latvia, Denmark, and India—where it recently secured a SEK 2.1 billion air defense contract—highlight its global reach.

Moreover, Saab's valuation remains attractive relative to its peers. At an 18x 2025E P/E, it trades at a discount to the sector average of 22x, despite outperforming in key metrics. This discrepancy reflects underappreciated growth in its international markets and recurring revenue streams. For context, Rheinmetall trades at a 25x P/E, Leonardo at 21x, and BAE Systems at 24x, yet Saab's margins and backlog suggest it is better positioned for sustained growth.

Valuation and Risk Considerations

Despite its strengths, Saab's valuation is not without risks. Its P/E ratio of 66x (TTM) is historically high, reflecting market expectations of rapid growth. However, this is justified by its 16–20% sales growth target for 2025 and a projected CAGR of 4.7% in military modernization budgets through 2030. Additionally, Saab's exposure to government contracts and geopolitical volatility could pose challenges. For instance, shifts in U.S. policy or European defense debt caps could impact funding timelines.

That said, Saab's supply chain resilience—rooted in domestic production and strategic partnerships—mitigates many of these risks. Its expansion into Finland, India, and the U.S. ensures it can navigate geopolitical tensions while maintaining delivery timelines.

Investment Thesis: A Long-Term Play on a Structural Shift

For investors with a multi-year horizon, Saab offers a compelling case. The company is not merely riding the defense spending wave; it is shaping the future of European security. Its focus on sovereign-driven innovation, recurring revenue, and margin expansion positions it as a long-term winner in a sector that is redefining itself.

The key question is whether the market will continue to underprice Saab's potential. At current valuations, the company appears undervalued relative to its growth prospects and the broader re-rating of the defense sector. With the EU's defense industry set to grow by €800 billion by 2029, Saab's strategic positioning—coupled with its financial discipline and innovation—makes it a standout play.

In conclusion, Saab AB is more than a beneficiary of the European defense boom—it is a catalyst. For long-term investors, the company's unique combination of growth, innovation, and valuation offers a rare opportunity to participate in a structural shift with lasting implications. As the continent rearms and reorients, Saab stands at the forefront, poised to deliver outsized returns to those who recognize its potential.