Chemring, Babcock and Avon top picks in defence sector, with BAE premium 'not justified'

Jefferies says UK defence stocks could regain momentum once the long-delayed Defence Investment Plan is published, arguing the sector still offers attractive long-term growth. The bank keeps Chemring as its top pick with a 655p target and ‘buy’ rating, citing a recovery at its Roke cyber and intelligence arm and forecasted earnings growth above 25% for 2027 and 2028. Jefferies also retains ‘buy’ ratings on Avon and Babcock, but holds on BAE and QinetiQ — noting BAE’s premium versus peers is not justified by outsized growth. The note is selectively positive: it highlights mid-to-high single-digit equipment spending potential but warns political/timing risks from delayed MoD guidance, implying selective stock-level opportunities within a cautiously constructive sector view.