AM European Defense Spending Will Drive Medium Term Expansion Beyond Civil Uncertainty

Key Takeaways

• Expanding international defense contracts and industrial partnerships drive strong revenue visibility and operational efficiency, benefiting from elevated global defense spending and localized production.
  
• Advances in business aviation and digital innovation enhance technological leadership, positioning Dassault to capitalize on premium markets and support long-term margin growth.
  
• Supply chain issues, global trade barriers, and stalled international collaborations threaten Dassault's growth, competitiveness, margins, and long-term earnings reliability.

Catalysts

Designs and manufactures military aircraft, business jets, and space systems in France, the United States, and internationally.

• The robust international demand for the Rafale-highlighted by major new contracts with India (including the first Rafale Marine export order) and the UAE, ongoing negotiations for additional aircraft with Indonesia, and active Make in India transfer initiatives-provides exceptional multi-year revenue visibility and demonstrates Dassault's ability to capitalize on the trend toward higher global defense spending, particularly among NATO and partner nations. This growing backlog should drive forward revenue growth and enhance long-term earnings stability.
  
• Strategic advances in the business aviation segment, such as the ramp-up of the Falcon 6X and the forthcoming Falcon 10X, are positioning Dassault to capture rising demand for advanced business jets as global connectivity and wealth increase. Successful entry and execution in the large-cabin, long-range jet market will support top-line growth and could improve net margins as the 10X matures past its initial lower-margin phase.
  
• Dassault is intensifying its focus on digital transformation, artificial intelligence, and automation, not only through R&D partnerships (e.g., with the French Agency for AI in Defense) but also via innovative products like multi-mission Falcons and the VORTEX spaceplane initiative. This strengthens its technological leadership as governments prioritize sophisticated, multi-domain solutions, allowing Dassault to command premium pricing and underpinning future margin expansion.
  
• The company's deepening industrial partnerships-such as full-scale manufacturing agreements in India (with Tata Advanced Systems) for Rafale fuselage production and assembly-are diversifying risks, opening new export channels, and increasing operational leverage. As production localizes and scales, operating efficiencies may improve, supporting both revenue and margins.
  
• Heightened geopolitical tensions and expanding defense budgets-especially across Europe, Asia, and the Middle East-are accelerating procurement cycles for advanced combat and surveillance platforms, benefiting Dassault's vast order backlog and visibility. With more than 500 Rafales sold and a multi-year ramp-up planned, the potential for sustained double-digit order growth provides a strong platform for long-term revenue growth and cash flow generation.

Dassault Aviation société anonyme Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dassault Aviation société anonyme's revenue will grow by 16.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 14.6% in 3 years time.
• Analysts expect earnings to reach €1.6 billion (and earnings per share of €19.52) by about September 2028, up from €782.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, down from 27.0x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 32.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.87%, as per the Simply Wall St company report.

Dassault Aviation société anonyme Future Earnings Per Share Growth

Risks

• Persistent and unresolved supply chain disruptions-including contractor delivery delays, insolvencies, and upstream part shortages-could impede Dassault's ability to meet aircraft delivery targets and manage the order backlog, potentially depressing both future revenue growth and operating margins.
  
• The imposition or continuation of significant U.S. customer tariffs (10-20% or higher) on French/European aircraft risks undermining Dassault's competitiveness and eroding access to the crucial U.S. business jet market, which historically represents over 50% of global demand, threatening revenue streams and net profit.
  
• Ongoing challenges in international defense collaboration, notably with the Future Combat Air System (FCAS) project and leadership disputes with Airbus and other European partners, may delay or even jeopardize next-generation product development, leading to increased R&D costs with an uncertain timeline for returns, thus compressing margins and delaying future earnings.
  
• Weakness in Falcon business jet orders, exacerbated by sluggish ramp-up of new models (6X, 10X), shifting market dynamics, and the threat of future decarbonization pressure may reduce overall civil aviation revenue and further impact operating profit margins due to the lower margins typical of new model introductions and compliance investments.
  
• Heightened geopolitical tensions, trade wars, anti-globalization trends, and cost inflation (including increased taxes like the French corporate tax surcharge) could increase volatility in export sales, particularly as Dassault grows more dependent on exports, directly impacting revenue predictability, net margins, and long-term earnings visibility.

Valuation

• The analysts have a consensus price target of €325.786 for Dassault Aviation société anonyme based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €390.0, and the most bearish reporting a price target of just €280.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €10.6 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 6.9%.
• Given the current share price of €269.8, the analyst price target of €325.79 is 17.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.