JP Morgan repeated its bullish stance on a trio of UK defence stocks after a double boost for the sector.
Rishi Sunak announced increased military support for Ukraine alongside a commitment to elevate defence spending - a pledge that is likely to be kept by Labour, which is currently well ahead in the polls.
In a separate but related announcement, the government and the Investment Association, representing 250 British investment managers who oversee more than £8.5 trillion, stated that investing in reputable, well-managed defence companies aligns with environmental, social, and governance (ESG) criteria.
This statement is seen as a significant endorsement for the defence sector, suggesting that these investments do not conflict with ESG standards.
Reacting to this, JP Morgan repeated its 'overweight' recommendations for BAE Systems PLC (LSE:BA.), Babcock International PLC (LSE:BAB), and QinetiQ Group PLC (LSE:QQ.).
Additionally, Babcock is on JP Morgan's 'positive catalyst watch' list in anticipation of fiscal year-end March 2024 results due in June.
JP Morgan's estimates for Babcock's earnings per share from March 2025 to 2027 are 11%, 12%, and 8% higher than the Bloomberg median consensus, respectively.
The valuation table provided by the American investment bank indicates that Babcock and QinetiQ appear significantly undervalued, suggesting potential for future gains.
Babcock was up 1.4%, QinetiQ ahead 1.3%, with BAE leading the pack with a 2.5% gain. Elsewhere in the defence sector, Chemring Group (LSE:CHG) was up 0.41% but Avon Protection PLC (LSE:AVON) was down 1%.