JP Morgan has placed Babcock International PLC (LSE:BAB) on “positive catalyst watch” ahead of full-year results on 25 June, expecting the defence contractor to raise guidance and outline growth opportunities following the UK’s new Strategic Defence Review (SDR).
Analyst David Perry sees two potential catalysts. First, Babcock may introduce fresh medium-term financial targets with its results for the year to March 2025.
Second, the company is likely to highlight benefits from the SDR, which was published on 2 June and outlines an expansion of UK defence spending in areas where Babcock is a key supplier.
JP Morgan forecasts earnings per share for the 2025–2027 financial years to be 5–7% ahead of consensus, and sees around 25% upside to its 1,280p price target.
The stock has already rebounded sharply over the past year but remains, in the US bank's view, one of the cheapest defence companies in Europe.
Babcock has undergone a major restructuring in recent years, streamlining its business, reducing debt and focusing on core contracts in the UK and selected international markets. Its return to organic growth, combined with stronger free cash flow, has begun to restore investor confidence.
However, the shares continue to trade at a discount to larger peers such as BAE Systems PLC (LSE:BA.).
JP Morgan believes stronger forward guidance and greater clarity around contract wins linked to the SDR could drive a re-rating. Any new targets on margin expansion or capital returns would also support sentiment.
The June results are expected to mark a turning point, giving investors a clearer view of the company’s post-turnaround trajectory and its role in delivering UK defence priorities over the next decade.
The shares were up 3% at 1,053p.