Shares of Swedish defense contractor Saab AB surged significantly on the 7th, leading major European indices, buoyed by an institutional rating upgrade and expectations of rising European defense spending.

During Tuesday's trading session, Saab's Swedish-listed stock (SAABb.ST) jumped 4.4%, topping the gainers list among constituents of the Europe Stoxx 600 index. The move followed a report from global financial institution Morgan Stanley, which upgraded its rating on Saab's stock from 'underweight' directly to 'overweight' and significantly raised its price target by 30% to 700 Swedish krona.

In its report, Morgan Stanley noted that Saab's current earnings growth prospects are highly attractive and that this positive outlook is not yet fully reflected in market consensus expectations. The report emphasized that Saab is positioned to benefit significantly from its industry standing amid accelerating military rearmament across multiple European nations, NATO expansion, and increased EU defense funding. Furthermore, driven by a series of recently secured contracts, Saab's total order backlog is projected to exceed 300 billion Swedish krona (approximately $311.3 billion) by 2026, indicating the market had substantially underestimated the company's medium-term demand.

In contrast to its view on other European defense firms, Morgan Stanley downgraded its rating on Norwegian defense and aerospace group Kongsberg Gruppen ASA from 'equal-weight' to 'underweight' in the same report. The institution's analysis suggested that information disclosed during Kongsberg's recent capital markets day indicates its future upside potential is already fully priced into the current share price.