BofA Securities raised its rating on ThyssenKrupp Marine Systems (TKMS) to "neutral" from "underperform" on Thursday, driven by what the bank describes as clearer order visibility, stronger execution on existing programs and a widening valuation discount relative to sector peers.
The brokerage note highlighted that TKMS has declined roughly 20% over the past three months, a steeper fall than the broader European defense sector's approximate 15% drop. On BofA's 2028 estimates the stock is trading at about 9.2x EV/EBIT, versus a sector average of 12.4x. "Given improved order visibility and execution, we don’t see this as justified," the analysts wrote.
Valuation and model changes
In its updated valuation framework, BofA now applies a 12x EV/EBIT multiple based on a 2029-30 average, down from the 13.5x multiple it used previously. The downgrade in the multiple was presented as a response to what the bank characterizes as a sector-wide de-rating, rather than company-specific deterioration.
The firm emphasized that the current market pricing does not appear to reflect the improved order backlog and execution updates it has observed.
Order backlog and pipeline
BofA noted considerable growth in TKMS's order backlog, which rose from approximately c6 billion in September 2020 to c20.6 billion as of March 2026. The bank interprets this as providing roughly eight years of revenue visibility at current run rates.
Key potential near-term catalysts identified by BofA include a Canada submarine program decision, estimated at around c12 billion. That decision has reportedly been pulled forward to mid-June from an earlier timeline that had placed the decision within two years. BofA said it sees a strong possibility of a TKMS win on that program, which would create upside to estimates and cash flow projections; the Canada program is not included in the brokerage's base estimates or consensus figures.
Other pipeline items cited include the F-127 frigate program at roughly c10 billion, an India submarine opportunity estimated between c3-4.5 billion, progress on the F-128 program following preliminary German funding, plus a record torpedo contract won in the second quarter.
Atlas Electronics and divisional outlook
BofA raised its estimates for the Atlas Electronics division, which the brokerage described as an emerging strategic asset. Atlas has notable torpedo exposure, accounting for about one-third of its revenue, and BofA models roughly 12% revenue compound annual growth for the unit to 2030. Adjusted EBIT margins for Atlas are forecast to reach around 13%, slightly above peer levels cited at 12-13%. Torpedo-related revenue is expected to carry mid-teens margins.
Group-level financials and cash flow
The revised group forecasts show revenue moving from c2.26 billion in fiscal 2026 to c2.93 billion by 2028. Adjusted EBIT is projected to increase from c147 million in 2026 to c229 million in 2028. Adjusted EPS is forecast at c2.23 in 2026 and rising to c3.74 in 2028, representing year-on-year growth of 34.1% and 29.2% for those respective periods.
BofA's free cash flow estimates are c680 million for fiscal 2026 and c665 million for 2027, before dropping to c157 million in 2028. Net cash is projected to reach c1.93 billion by the end of fiscal 2026 and c2.59 billion by 2028 under the brokerage's assumptions.
Downside and upside considerations
On the downside, BofA flagged execution risk in the submarine division as the principal risk to the thesis, noting that delivery or program execution problems could hurt earnings and cash flow. On the upside, the bank identified unexpected order wins - in particular for the F-126 program - as the main source of upside to free cash flow and earnings forecasts.
Overall, the brokerage's move to neutral reflects a balancing of a deeper valuation discount against improving contractual visibility and execution, while acknowledging both the execution risks in submarines and the potential for material upside from large order awards.