Hensoldt’s New German Fighter Coalition and Record Orders Fail to Sway Cautious Analysts

For Hensoldt, the collapse of the Franco-German-Spanish Future Combat Air System (FCAS) has turned into an opportunity to forge a home-grown alternative. On the opening day of the ILA Berlin air show, the sensor specialist joined forces with Airbus, Diehl Defence, MBDA and MTU Aero Engines to unveil “Team Gen 6” — a German concept for a next-generation fighter jet called the Next Generation Weapon System (NGWS). The consortium positions itself as a technological fallback while Berlin weighs other options, including joining the British-Italian-Japanese GCAP project or buying more F-35s from the US.

Chancellor Friedrich Merz is due to open the ILA on Wednesday afternoon, and the industry is waiting for a new cabinet paper on Germany’s aviation strategy. The goal is to keep the country among the leading aerospace nations over the next 15 years. Hensoldt, as a sensor specialist, sees itself playing a central role, particularly in unmanned systems. The wider industry is pressing for lower location costs and less red tape to stay globally competitive.

Yet despite the promising alliance and the political backdrop, Hensoldt’s shares are finding it hard to break out. The stock edged up to €78.22 on Wednesday, bringing its 30-day gain to around 10%. That still leaves it roughly a third below the record high set last October. At the same time, the broader defence sector is facing headwinds from two heavyweight analysts.

Morgan Stanley has downgraded the European defence sector to neutral. Strategist Marina Zavolock acknowledged the sector’s long-term appeal but argued that near-term momentum is lacking — earnings and price targets no longer have enough upside, and she sees no fresh catalysts until later in the year. Citigroup chimed in with its own neutral rating, warning of a “peak ammunition” risk. Both banks hold the same cautious view, and defence stocks took a hit on Tuesday as a result.

Should investors sell immediately? Or is it worth buying Hensoldt?

Hensoldt closed that day at €77.74, marginally in the black but still trading just below its 50-day moving average of €79.07 and roughly 32% below its year high of €115.10. Meanwhile, another weight is looming: the planned initial public offering of tankmaker KNDS, expected in June 2026 with a valuation of €15bn to €20bn. Defence sector funds may need to free up liquidity to take up the new name, potentially selling existing holdings like Hensoldt in the process.

The operational picture, however, tells a different story. In the first quarter of 2026, Hensoldt’s order intake surged to €1.48bn — more than double the prior year’s level. The order backlog swelled to €9.8bn, pushing the book-to-bill ratio to 3.0x. On 1 June, the company raised its adjusted free cash flow outlook to around 50% of adjusted EBITDA, up from roughly 40%, citing higher customer prepayments linked to accelerated procurement in Germany. The full-year forecast calls for revenue of around €2.75bn and an adjusted EBITDA margin of 18.5% to 19.0%.

Analysts remain mostly positive on the stock, though with varying conviction. Deutsche Bank reiterated a buy rating with a price target of €101. Barclays is neutral at €97, while Jefferies sees fair value at €90. The market is currently pencilling in a dividend of just under €0.70 per share for fiscal 2026.

Germany’s defence budget for this year stands at a record €108bn, providing structural tailwinds irrespective of how the war in Ukraine evolves. But investors want proof that volume growth is feeding through to margins. The next major test comes on 31 July, when Hensoldt reports its half-year numbers. Until then, the gap between operational strength and market sentiment remains wide — and the KNDS IPO cloud only adds to the uncertainty.