Austal Ltd (ASX: ASB) shares are in focus after they opened trading this week with a 20% explosion on Monday.
It was a strong rebound after the Austal share price fell significantly at the end of last week.
Austal shares are no stranger to volatility. They have ridden the waves of the emerging defence theme over the last year.
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The defence rollercoaster
Austal is an Australian-based shipbuilder that specialises in the design, construction, and support of defence and commercial vessels globally.
Austal's products include naval vessels, defence surface warfare combatants, high-speed support vessels, patrol boats for law enforcement, offshore vessels, as well as passenger and vehicle ferries.
The company also installs and maintains vessel command and control systems, communication and radar technology, and information management systems.
Over the past 12 months, defence stocks like Austal have been heavily covered as global conflict and geopolitical risk has led to heavy defence spending.
Investor sentiment has largely been positive on this sector, with heavy gains for fellow ASX defence shares like Droneshield Ltd (ASX: DRO) and Electro Optic Systems Hldgs Ltd (ASX: EOS).
At the time of writing, Austal shares are 61% higher than a year ago.
However they have fallen 33% from yearly highs back in January.
With such significant share price movement, it can be difficult for investors to pinpoint true value.
However, a new report from Bell Potter has provided updated guidance on Austal shares.
Here's what the broker had to say.
No smooth sailing
Bell Potter highlighted that ASB has downgraded its EBIT guidance for FY26 to ~A$110m, an 18.5% downgrade from the original $135m provided in October 2025.
It said the cause of the downgrade was due to the accidental double-counting of US$17.1m worth of incentives related to its T-ATS program.
The error was discovered during the preparation of its 1H26 accounts.
This led to a downgraded outlook from the broker.
We have revised EPS lower by a -19%/-7%/-5% over FY26/27/28e reflecting lower USA shipbuilding margin in FY26e, following the EBIT guide and lower EBIT margins in FY27/28e in line with new program ramp up.
We downgrade our target price by 18% reflecting lower earnings and a higher WACC due to greater observed share price volatility.
Price target decline but upside remains
In yesterday's report, Bell Potter lowered its price target on Austal shares to $6.60 (previously $8.00).
Despite the significant cut to its outlook, based on yesterday's closing price, there is still upside for Austal shares.
Bell Potter's target indicates roughly 13% upside from current levels.
However the hold rating suggests it's not all smooth sailing for this defence stock.
When stripping out the MMF 3 earnings from future consensus forecasts, we observe that ASB trades in line with global peers on an EV/EBIT basis for FY26. Although ASB exhibits superior revenue growth, operational risks are relatively elevated as ASB transitions from legacy to new shipbuilding contracts in the USA. We retain Hold.
