QinetiQ Group PLC (LSE:QQ.) shares continued to fall on Tuesday as analysts weighed in on the defence contractor's profit warning from yesterday, wiping out all its gains from the expected boost to European spending .
Shore Capital downgraded its recommendation to 'hold' from 'buy' as it cut its fair value to 410p, versus the last close price of 416.20p, as delays reported in orders across the FTSE 250 group's short cycle programmes in the UK and US caused it to downgrade 2025 earnings forecasts by 20%.
"Looking further out, we expect a strong recovery in the EMEA Services as the SDR uncertainty decreases, but US budgetary concerns might persist for a while longer," the broker added.
Deutsche Bank also cut its target price to 520p from 570p as near-term trading "continues to be impacted by delays to a number of contract awards".
"Recent geopolitical uncertainty, reflected in tighter export controls, has also impacted the usual Q4 weighting to higher-margin product sales from the US."
The analysts noted that QinetiQ management was keen to highlight the temporary nature of this disruption, as well as continued decent trading at its UK defence business, with its greater exposure to longer duration contracts.
"Contract flow has been disrupted by regime changes on both sides of the Atlantic, with capability, spending priority and efficiency assessments ongoing."
In the UK, despite Downing Street's stated ambitions to increase defence spending to 2.5% of GDP from 2027, "many specifics have yet to be decided", with the Strategic Defence Review (SDR) expected before the halfway point of the year, is "expected to provide clarity and a resumption of spending growth".
Citi also a £200 million of additional buyback over the next two years "may be a silver lining for investors, nevertheless this update will be a disappointment for the market".
The US political situation and funding delay on UK short cycle intelligence is "likely to create an uncertainty overhang".