Saab delivered another strong quarter, beating our and consensus expectations on revenue, profitability, and EPS, while order intake fell short of our estimate on the timing of smaller campaigns. The Polish submarine order carried the intake and validated our view that the next phase of European rearmament favors larger platforms, where Saab is strongly positioned. We raise our 2026-28 estimates only slightly, as our numbers already embed high expectations. Meanwhile, the valuation has become more reasonable through a de-rating we view as sentiment-driven rather than fundamental. With earnings growth doing most of the work for expected returns, the return equation clears our bar, though the high expectations embedded in the shares keep our conviction on the same level. We raise our target price to SEK 635 (prev. SEK 622) and keep our recommendation at Accumulate.

The quarter was strong across the board

Revenue came in ahead of both our estimate and consensus, and the margin also exceeded our expectations. Surveillance drove the beat with high delivery volumes and record radar deliveries, Dynamics exceeded our margin estimate, and Aeronautics was broadly in line while still carrying T-7A start-up costs. Naval was the disappointment, as Swedish frigate program costs pushed its margin well below our estimate. Order intake missed our assumption of a softer flow in Aeronautics and Dynamics, but Naval carried the order book and cash flow continued to improve.

The ramp-up is working but the model was ready

We raise our revenue and earnings estimates only slightly, mainly to reflect the booked A26 order and the Ukraine Gripen order to be booked in Q3. Our estimates already embed high expectations well into the next decade, which keeps additional optimism in check. Capacity investments-initiated years ago are now coming online, improving the delivery pace and visibility on future revenue. Meanwhile, execution remains the key risk, but the company keeps delivering on that front.

Good enough to stay aboard

Saab still screens expensive, but at P/E multiples of 32-27x for 2027-28, the valuation is significantly more reasonable than at our Q4'25 update, and our acceptable long-term ranges come within reach in 2028-29. We think the premium over peers is deserved given the scarcity of comparable European defense assets, the delivery track record, and an ownership structure that supports long-term decision-making. In our framework, earnings growth does most of the work for expected shareholder return, while dividends add a modest contribution, and a gradual multiple contraction partly offsets both. Our DCF points to a fair value of SEK 635 per share, implying ~12% upside and a return above our cost of equity. The expected return clears our cost of equity, but the high expectations already embedded in the shares keep our conviction in check.