Company Reports

Thales' business is well diversified, with 45% of revenue coming from civil and 55% from defense. Escalating global security concerns, intensified by the conflict in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. Thales is strategically positioned to benefit, given its significant stakes in an array of major international defense projects. With around two-thirds of its defense revenue coming from Europe, Thales remains ideally positioned to benefit from Europe’s structural rearmament cycle, with defense spending expected to increase to an average of 3.5% of gross domestic product by 2035 from 2.1% in 2024.

Thales’ first-half sales rose 7.8% organically to EUR 10.9 billion, while adjusted EBIT increased 10% to EUR 1.37 billion and margin expanded 30 basis points to 12.5%. Order intake rose 22% organically to EUR 12.5 billion.

Thales' business is well diversified, with 45% of revenue coming from civil and 55% from defense. Escalating global security concerns, intensified by the conflict in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. Thales is strategically positioned to benefit, given its significant stakes in an array of major international defense projects. With around two-thirds of its defense revenue coming from Europe, Thales remains ideally positioned to benefit from Europe’s structural rearmament cycle, with defense spending expected to increase to an average of 3.5% of gross domestic product by 2035 from 2.1% in 2024.

Thales reported order intake of EUR 4.7 billion (27%) and sales of EUR 5.3 billion (9.7%), driven by 14.3% defense growth and solid aerospace and digital demand in the first quarter. Defense orders rose 75% on five large contracts, while aerospace remained resilient despite avionics lumpiness.

Thales reported 2025 sales of EUR 22.1 billion, up 8.8%, with adjusted EBIT of EUR 2.74 billion and a 12.4% margin. Free operating cash flow reached EUR 2.58 billion, implying 128% cash conversion.

European defense stocks rose on Jan. 8 after President Donald Trump called for a roughly 66% increase in the 2027 US defense budget, alongside renewed geopolitical risk from Washington’s rhetoric on Greenland.

Reports of the US-driven Russia-Ukraine peace deal triggered a downturn in European defense stocks, with names under our coverage down between 10%-20% since October highs.

Thales' business is well diversified, with 47% of revenue coming from civil and 53% from defense. Escalating global security concerns, intensified by the conflict in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. Thales is strategically positioned to benefit, given its significant stakes in an array of major international defense projects. With around two-thirds of its defense revenue coming from Europe, Thales remains ideally positioned to benefit from Europe’s structural rearmament cycle, with defense spending expected to increase to an average of 3.5% of gross domestic product by 2035 from 2.1% in 2024.

Thales posted 11% organic growth in the third quarter and 9% year to date, driven by strong defense and aerospace performance offsetting a weak quarter for cyber.

European defense stocks fell sharply after US President Donald Trump met with Russian President Vladimir Putin in Alaska and with Ukrainian President Volodymyr Zelenskyy in Washington. Markets linked the selloff to media reports of a potential ceasefire and US-led deals.

Thales reported 8.1% organic sales and 12.7% EBIT growth in first-half 2025, driven by defense and avionics. EBIT margin rose to 12.2% and free cash flow reached EUR 499 million from a negative figure in the previous year. It raised sales guidance to 6%-7%, but reaffirmed margin and cash targets.

NATO set a new defense spending target of 5% of GDP, with 3.5% allocated to core defense and implementation shifted from 2032 to 2035. The agreement places renewed emphasis on European joint procurement as part of a broader push for defense integration.

On June 13, Israel launched a series of strikes against Iranian facilities and personnel targeting its nuclear enrichment and armament programs. Shares of global defense contractors appreciated as much as 4% in early trading in reaction to the news.

Wide-moat Thales delivered a solid start to 2025, with first-quarter sales up 9.9% organically to EUR 5.0 billion, supported by strong execution in Defense and continued momentum in Avionics. While order intake declined 27% organically to EUR 3.8 billion due to an exceptionally high base in the prior year, management reaffirmed full-year guidance, citing order phasing and strong visibility from the EUR 44 billion backlog. We maintain our fair value estimate.

While it is still too early to fully assess the implications of the proposed tariffs on the defense sector, it's important to consider the US' role in the global defense trade. The US remains a net exporter of military equipment, accounting for roughly 43% of global arms exports between 2021 and 2023 (based on SIPRI TIV data), while representing just 3% of global arms imports over the same period. Although the US defense industry is largely self-sufficient in end-product manufacturing, it remains exposed to risks tied to critical raw material imports—such as gallium, yttrium, and tantalum—which are vital for systems like fighter jets, helicopters, armored vehicles, and precision munitions.

Thales delivered a strong 2024 performance, exceeding financial targets across revenue, profit, and cash generation. The company reported record order intake of EUR 25.3 billion (6% organic growth), driven by robust demand in defense and space, resulting in a book/bill ratio of 1.23.

Thales' business is well diversified with 48% of revenue coming from civil and 52% from defense. Escalating global security concerns, intensified by the conflict in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. Thales is strategically positioned to benefit, given its significant stakes in an array of major international defense projects. Thales derives approximately 68% of its defense revenue from Europe, and we expect the collective defense budget there to increase by almost 35% in the next five years.

The recent US negotiations with Canada and Mexico have set a precedent for how the European Union might handle its tariff disputes with President Donald Trump. His temporary pause on these tariffs, influenced by concessions on border security, reflects the transactional nature of his foreign policy. This dynamic is now playing out in the EU-US relationship, where the threat of tariffs is intertwined with demands by Trump for NATO allies to spend 5% of gross domestic product on defense, far above the organization's 2% target.

We increase our fair value estimate for Thales to EUR 190 from EUR 156 to account for increased European defense spending, catalyzed by President Donald Trump's election victory. NATO's 2% gross domestic product defense spending target has long been a benchmark, but is inadequate after decades of underinvestment. Trump's push for NATO allies to spend 3% of GDP and more recently up to 5%, could drive substantial increases. We expect European defense spending to rise from 1.7% of GDP in 2023 to 2.4% by 2029 and 2.8% by 2032.

Thales' business is well diversified with 48% of revenue coming from civil and 52% from defense. Escalating global security concerns, intensified by the conflict in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. Thales group is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects. Thales derives approximately 68% of its defense revenue from Europe, and we expect the collective defense budget there to increase by almost 35% in the next five years.