If you are looking for exposure to the booming defence sector for your portfolio, then the ASX stocks in this article could be worth considering.
That's because analysts at Bell Potter think they are investment weapons with very bright futures. Here's what the broker is recommending:
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Electro Optic Systems Holdings Ltd (ASX: EOS)
The first ASX defence stock that Bell Potter is bullish on is defence and space company EOS.
Following the release of a stronger than expected fourth quarter update, the broker has retained its buy rating and $12.00 price target on the ASX defence stock.
As a market leader in C-UAS solutions, Bell Potter believes the company is well-placed to be a big winner from increased spending on these technologies. It explains:
We retain our Buy rating and raise our TP to $12.00. EOS is positioned as a market leader in C-UAS solutions, particularly in directed energy, and is leveraged to increasing budget allocations to C-UAS technologies. We see positive news flow over the next 6 months stemming from C-UAS and RWS contract awards. At 44x CY26e EV / EBITDA, EOS trades at a 26% discount to the Global drone peer group mean.
Elsight Ltd (ASX: ELS)
Bell Potter is also feeling very positive about Elsight, which is a supplier of communication modules to drone original equipment manufacturers (OEMs).
In response to its quarterly update, the broker has retained its buy rating on the ASX defence stock with an improved price target of $5.50.
It believes that Elsight has developed a market leading product and is well-positioned to benefit from growth in the unmanned systems industry. It said:
We retain our Buy rating. We believe ELS has developed a market leading product that is fully leveraged to the emerging use of unmanned systems in both a defence and commercial context. In CY26e, we expect ELS to be a beneficiary of downstream demand from global defence departments, supporting our 70% hardware sales revenue growth estimate.
We believe ELS shares offer relative value at 37x CY26e EV/EBITDA given its recurring revenue, capital-light business model, relative valuation vs. other drone exposed stocks (42% discount to mean of global peers) and long runway of growth. We believe ELS can close this valuation gap via a broadening in its customer base (an estimated >80% of revenue generated from one customer in CY25e). We view ELS as a prime candidate for an OEM looking to vertically integrate.
