If you are wanting to gain exposure to the booming defence market, then the ASX stock in this article could be one to buy.
That's the view of analysts at Bell Potter, which have just made a material increase to their valuation for this growing company.
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Which ASX defence stock?
The stock in question is Electro Optic Systems Holdings Ltd (ASX: EOS).
The broker has been busy reviewing its forecasts and valuation for the company following recent updates and its impressive share price performance.
In respect to the former, the broker believes the ASX defence stock is well-placed to achieve its expectations in 2025. It said:
CY25 on-track to meet BPe: Whilst EOS's CY25 performance is expected to be heavily weighted towards the 2H, we are confident the company will meet our full-year revenue forecasts of $160.0m. Following the recent RWS contract ($53m) from a Western European customer, EOS has a contract backlog of ~$190m with ~$140m to be delivered this year. We anticipate 1H25 revenue of $64m, reflecting a 40%/60% split between the 1H and 2H.
Bell Potter also highlights that the aforementioned RWS contract could be just the start of big things. It explains:
In our view, EOS is in the early stages of a major contracting cycle, with several near-term sales opportunities. The company has identified two HELW contracts valued at $50m – $100m and the Land-400 program with Hanwha ($80-$100m) as opportunities that could be awarded before the end of CY25, plus a major $500m Middle east contract that could be awarded in CY26.
Valuation increase
In light of the above, the broker has lifted its valuation for the ASX defence stock materially. It said:
To reflect the strengthened balance sheet and strong re-ratings across our defence coverage, we have reduced the WACC we apply in our DCF to 9.1% and have increased the multiple we apply in our EV/EBITDA multiple to 22.0x.
This has led to Bell Potter reaffirming its buy rating on EOS' shares with a vastly improved price target of $3.10 (from $2.15).
Based on its current share price of $2.65, this implies potential upside of 17% for investors over the next 12 months.
Commenting on its buy recommendation, the broker said:
Whilst we anticipate some volatility around the 1H25 result, we are bullish on the 12- month view for EOS considering the material sales opportunities during this period. Further, EOS's commercialisation of HELW, the next advancement in counter-drone, provides confidence in our long-term forecasts. We retain our BUY recommendation.
