This week at CANSEC, Canada's global defense & security trade show, Prime Minister Mark Carney announced the selection of Saab's GlobalEye for Canada's Airborne Early Warning and Control (AEW&C) program, focused on Arctic surveillance.
The GlobalEye displaces the Boeing E-7 Wedgetail and L3Harris Aeris X, in favor of a made-in-Canada solution that builds on Bombardier's (BBD-B.TO) Global 6500 aircraft and CAE (CAE.TO, CAE) training systems, writes Stifel Canada's Daryl Young.
A formal agreement between Canada and Saab remains under negotiation.
"Although this announcement had been widely anticipated, we are highly encouraged to see Canada's new "Defence Industrial Strategy" in action, with clear benefits to CAE under its cooperation agreement with Saab. Canada's military re-tooling efforts remain in the early stages, providing a multi-year/decade growth trajectory, while we think PM Carney's strategic relationship building across NATO nations could provide a multiplier effect to Canada's defense champions," Young writes.
It is unclear what the dollar figure or direct impact to CAE might be as part of the training/simulation requirements associated with the GlobalEye aircraft, but Young expects it to be material, particularly within the Saab/CAE cooperation agreement which relies on CAE as the preferred training partner, first announced last November.
There were no updates at the trade show regarding the pending fighter jet decision between Saab's Gripen-E fighter versus Lockheed's F-35. Canada's submarine procurement program remains another large training opportunity for CAE, Young adds.
Stifel Canada has a buy rating on CAE shares and a C$47.00 price target.
Near-term, sentiment for CAE stock could improve alongside new defense orders and backlog growth, eventual resolution of the Middle East conflict, removing overhangs associate with commercial airline capacity/pilot hiring concerns, and potential upside from the sale of the Flightscape business.
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