Source: Sharecast
The bank said it was extending its estimates from YE Mar 28 to YE Mar 31, as it has done for several other defence stocks in recent weeks.
"We also increase our YE Mar 26E to Mar 28 estimated earnings per share by 1%/2%/4% following an upbeat teach-in (May 20th) on Babcock’s Cavendish Nuclear business (7% of group sales)," it said.
"We expect BAB to deliver average EPS growth of 10% for the next five years, with high visibility and reducing execution risk.
"As a result, we now apply a higher target valuation multiple, increasing our multiples-based Dec-26 PT to 1,100p (from 1,000p) for 28% potential upside over the next circa 18 months."
JPM said Babcock remains one of the cheapest European defence stocks in its coverage.
JPM rates Babcock at 'overweight'.
Elsewhere, Citi upgraded Phoenix Group to ‘buy’ from ‘neutral’ and lifted the price target to 730p from 537p as it pointed to balance sheet flexibility and a growing franchise.
"Phoenix is changing," Citi said in a research note. "Having been known as a back book consolidator it has since developed a leading Bulk Annuity franchise and the next step should see it further strengthen its position in retirement savings by retaining more of its existing customers and harnessing structural Workplace pension growth."
The bank said that combined with emerging cost efficiencies, reduced debt leverage and potential improvements to the hedge programme, the outlook is bright and a dividend yield of 9% seems very well supported.
"The shares can begin to close a 35% valuation discount versus peers," it said.
Citi said it estimates a recurring free cash flow yield of 14% rising to 19% by 2027, or 24% in its upside scenario.
