Investing.com -- Shares of Italian rocket motor maker Avio SpA rose 4% after Berenberg upgraded the company to "buy" from "hold", saying the shortage of solid rocket motors for missiles is structural and U.S. missile makers want an independent supplier.
Berenberg said the shortage has deepened because of ongoing conflicts. It said Avio has the experience to take market share.
Avio puts the combined U.S. and European shortfall of missile propellant at 3,400 tons a year through 2030, which is 40% wider than a year ago, the broker said.
U.S. missile budgets are expected to rise to a requested $95 billion in fiscal 2027 from about $36 billion in fiscal 2026.
The war with Iran used about $17 billion worth of U.S. missiles with solid motors, Berenberg said, including about half of the Patriot, THAAD and PrSM missile stocks.
Lockheed Martin and Raytheon have lined up Avio for six programmes, including the PrSM, the ER GMLRS rocket, the Standard Missile family and the Tomahawk.
Berenberg said Lockheed's programmes secure almost half of the output of Avio's planned 700-ton U.S. plant, and it expects Raytheon to fill most of the rest.
Berenberg raised its 2030 forecast for defence propulsion revenue to €532 million from €312 million.
It lifted its 2030 adjusted core earnings (EBITDA) forecast by 42% to €141 million, a margin of 11.6% versus 9.5% previously.
Berenberg said its 2030 revenue and adjusted EBITDA forecasts are 19% and 49% above consensus.
Berenberg cut its earnings per share forecasts by 15.4% for 2026, 30.4% for 2027 and 11.5% for 2028.
The broker said the wait for returns from the new U.S plant remains. Avio is investing more than $500 million in the plant, which is unlikely to produce before the end of 2028. Berenberg said Avio lags in the firm's U.S. order backlog and that free cash flow is negative while the plant is built.
Berenberg started coverage of Avio with a "hold" rating on Sept. 1, citing the long wait for payoff from the U.S. plant.
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