European Defence Stocks that Could Protect Your Portfolio as Security Concerns Intensify

The European defence sector could be a smart place to park some capital for the next few years. With geopolitical risks rising, defence spending across Europe is expected to soar in the years ahead. Looking for European defence stocks to buy today? We highlight 3 top companies to check out below.

Defence Spending in Europe is Set to Rise

Back in March, US President Donald Trump cast doubt on his willingness to defend NATO allies in the future. This naturally triggered alarm bells in Europe since a weakened NATO alliance could potentially lead to further Russian aggression beyond Ukraine.

Given the increased security threat, the European Commission announced a 5-part plan (“ReArm Europe”) to mobilise up to €800 billion in new defence spending over the next 4 years. Meanwhile, here in the UK, Prime Minister Keir Starmer announced that Britain will increase its spending on defence from 2.3% of GDP to 2.5% – the biggest increase in defence spending since the Cold War.

Given this increased level of defence spending, European defence stocks could potentially be solid investments in the years ahead. While defence businesses globally will most likely benefit from higher defence spending across Europe, European (and UK-based) suppliers are likely to benefit disproportionately.

1. BAE Systems

One company that appears well placed to benefit is UK defence company BAE Systems (BA:LON). It offers a broad range of military solutions from fighter jets to submarines.

This stock has had a good run in recent months. But its valuation still looks reasonable, all things considered. Currently, it trades on a forward-looking P/E ratio of about 24. That’s significantly lower than the P/E ratio on European defence company Rheinmetall – which is about 55 right now.

Note that this year, BAE’s revenue and earnings per share (EPS) are projected to grow 17% and 18% respectively. So, there’s a decent level of growth here. One other thing to like about BAE is that it pays regular dividends. Currently, the dividend yield is about 2%.

2. Leonardo

Another business that is well placed for growth in the current environment is Leonardo (LDO:BIT). It’s an Italian defence company that is known for its helicopters and aircraft, defence electronics, and cybersecurity systems and has alliances with other major defence companies such as Rheinmetall and Baykar.

Analysts expect Leonardo to generate revenue of around €18.9 billion this year. That compares to €17.8 billion in 2024. I wouldn’t be surprised to see revenue come in higher than forecasts though, given the backdrop. In this environment, 6% growth in revenue shouldn’t be hard to achieve for this defence company.

In terms of earnings, analysts expect Leonardo to generate EPS of €1.73 this year. That puts the P/E ratio at 28. That’s high but the company should be able to grow into this multiple. Jefferies – which has a “buy” rating on the stock – has a 12-month price target of €52 which is about 9% above the current share price.

3. Thales

Finally, check out French company Thales (HO:EPA). One of Europe’s larger defence companies with a market cap of around €50 billion, it offers a wide range of defence solutions, including air defence systems, communication and information systems, sensors and radar systems, and cybersecurity solutions.

Last year, Thales sales came in at €20.6 billion. This year, analysts expect the company to do €21.9 billion in sales – roughly 6% higher. Again, this level of growth shouldn’t be too hard to achieve. At the end of 2024, the company had an order book of €50.6 billion and in Q1, sales were up 9.9% year on year.

At present, the consensus EPS forecast for 2025 is €9.52. That puts the company’s P/E ratio at around 26. That seems reasonable given the growth prospects the company has in the medium term. That said, this company is a little more cyclical than some other defence companies (due to its exposure to commercial aerospace) so this is a risk to consider.