Morgan Stanley gives in to Indra and raises its valuation by 118%: "The hidden champion of defense?"

Indra is enjoying a boom like never before on the stock market. The company, chaired by Ángel Escribano, has already accumulated profits exceeding 100% this year and its returns over the last five years have clearly exceeded 400%.

Europe's shift toward greater defense spending has provided considerable support to the investment story of a group that has made this its main growth lever , leaving its historical exposure to the IT business in the background.

Amid the optimism surrounding the company, several analysts are beginning to question whether the group's positive outlook in the defense sector is already sufficiently reflected in the price. This is not the view presented by analysts at Morgan Stanley. The US bank has announced a 118% increase in its valuation of Indra. The previously stated target price of €21.50 has now risen to €47 per share, which represents the most optimistic view among the firms covering the stock (surpassing the €46.20 at which CaixaBank values ​​it).

This new target price, which is 40% above Indra's closing price on Thursday, leads Morgan Stanley to recommend an overweight position on its shares . Indra received this news this Friday with gains approaching 5%. This raises its market capitalization to over €6.2 billion.

In the report in which Morgan Stanley justifies its decision, the American bank questions whether Indra is "the hidden champion of defense," emphasizing that the market is giving little credit to the Spanish company's commitment to this sector.

"We believe the market is not yet giving full credit to Indra's defense business, which has posted revenue growth of around 25% over the past two years with a net EBIT margin of nearly 18%, which looks attractive in the context of the broader European defense sector," they indicate.

13% EPS growth

Morgan Stanley explains that the skepticism with which the market has typically viewed the government's plans to turn Indra into the Spanish defense industry champion and its exposure to the IT sector have meant that the group has historically traded at a discount to other groups in the sector. The firm's experts note that its €47 target price would still imply a significant discount to the sector (it would imply a P/E of around 20x in 2026, compared to the more than 30x at which its peers trade), but "with its defense business expected to represent around 50% of adjusted EBIT by FY26, we see further scope for the gap in multiples to narrow over time."

The US bank even downplays the recent doubts surrounding the Spanish government's resistance to increasing defense spending above 2% . "Even if we assume the country continues spending 2% of GDP until 2030, the time to offset the last 30 years of underinvestment would be reduced to six years and the potential market would increase by 50% . If this materializes, it would likely represent an increase in our estimates of organic defense revenue growth for fiscal years 26/27, which remain virtually unchanged (15%/12%, respectively) for Indra," they point out.

Morgan Stanley experts expect Indra to soon update its medium-term earnings targets, given the favorable outlook for the sector. The firm currently projects an organic revenue growth rate of 8% between 2024 and 2027 (10% if acquisitions are considered) and an improvement in earnings per share of around 13%. This would imply increasing revenue in 2027 to around €6.5 billion, while adjusted profit would exceed €443 million.