Investing.com — JPMorgan is encouraging investors to buy into the European defense sector’s recent pullback, arguing the selloff has created a compelling entry point, especially for one individual stock.
European defense stocks have fallen an average of 8% since the start of the U.S./Israel-Iran conflict, with shares in Czech defense group dropping a steeper 19% over the same period.
Analyst David Perry attributed the weakness to investor de-grossing, concerns about rising government debt crowding out defense budgets, and growing focus on execution risks at high-growth companies.
However, he argued none of these concerns undermine the sector’s fundamental case.
“Whilst all of these explanations/concerns are valid we would argue that the geopolitical situation is the most fragile it has been in our 28 years covering the A&D sector,” Perry said in a Friday note.
He pointed to two active major conflicts – weakening international institutions, and roughly three decades of European underinvestment in defense that could take another ten years to reverse.
The analyst also dismissed the debate between longer-cycle defense companies — aircraft and warship makers — and shorter-cycle ones such as armoured vehicle and ammunition producers as mostly noise, saying every European defense company stands to benefit from the current spending supercycle.
“All Defense stocks look attractive; the long vs. short cycle debate is noise,” Perry wrote, highlighting “an excellent entry point into CSG.”
The company’s 2025 results beat expectations, with sales, adjusted EBIT, and net income coming in 5%, 4%, and 2% ahead of JPMorgan’s estimates, respectively.
CSG reaffirmed all of its 2026 and medium-term guidance and expanded its total order backlog and pipeline to €42 billion from €32 billion, nearly all of it tied to potential new armoured vehicle orders.
“Almost all of the increase is related to potential orders for armoured vehicles,” Perry said. “CSG was not willing to give more detail on the potential new vehicle orders; we think it would help the share price if the company gave more detail on its order backlog and its pipeline.”
The analyst also described CSG’s leverage guidance as very conservative. While the company guided for net debt-to-EBITDA to remain below 1.5x by end-2026, JPMorgan estimates the ratio will come in closer to 0.7x, factoring in the €750 million raised at IPO and projected 2026 free cash flow of €800-900 million.
The bank rates CSG Overweight with a December 2027 price target of €40, implying around 57% upside from current levels.
“We see significant upside to almost all of the European Defense stocks, but CSG stands out as especially attractive,” Perry said.