Canadian defence stocks are about to get a significant boost in 2025 and beyond. NATO (North Atlantic Treaty Organization) has been pushing its members to increase defence spending, given rising geopolitical tensions. For years, Canada has failed to meet its NATO defence spending commitments.
However, under the new Carney government, Canada recently committed to invest 3.5% of GDP (gross domestic product) into core military capabilities and 1.5% into critical defence infrastructure. Given that Canada only spent 1.4% of GDP on defence in fiscal 2024, the new pledge is a substantial increase.
Now the question is, which Canadian stocks stand to benefit from this? Well, that answer is a little challenging. Canada does not have a robust defence sector like the U.S. does.
As a result, investors need to do a little extra digging to find companies that will benefit from the new rise in government spending. Here are three Canadian defence stocks that could stand to benefit.
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A Canadian provider focused on subsea defence
Kraken Robotic (TSXV: PNG) is a mid-cap stock that is enjoying a boost from global defence spending. Kraken is focused on designing and selling remote and autonomous underwater sonar vehicles, as well as specialized batteries for subsea applications.
Unmanned underwater vehicles are becoming increasingly important to militaries for subsea monitoring, surveillance, and lethal capabilities. Defence applications have grown to become 70% of Kraken’s business.
The company has been experiencing very strong growth over the past few years. Since 2020, revenues have grown by a 33.7% compounded annual growth rate (CAGR), and earnings per share have increased by a 95% CAGR. Its stock is up 605% in that period!
Now, with all that growth, this stock doesn’t come cheap anymore. It trades with a trailing enterprise value-to-EBITDA (earnings before interest, tax, depreciation, and amortization) of 92. Investors are paying for big expectations for future growth. So far, the company has delivered on its growth plan, so it is an intriguing Canadian defence stock to look at now.
A multi-service defence stock
Calian Group (TSX: CGY) is the small-cap pick in this mix. Its performance hasn’t been quite as good as Kraken’s. Investors can look at this as the value and income pick in this mix of stocks.
Calian has a market cap of $561 million. It is a supplier of health, training, and technology solutions to the Canadian defence department and NATO. Over 50% of its revenues come from defence-related projects.
The stock has floundered in recent years. However, an activist group has recently become involved. They are looking to spur Calian to become a pure-play defence contractor. Certainly, these efforts could help unlock some value. Calian only trades with an EV-to-EBITDA ratio of 10. It has an attractive 2.2% yield as well.
A stock with a growing defence backlog
CAE (TSX: CAE) is the large cap stock in these picks. It has a market cap of $12.7 billion. This defence stock offers flight simulation and training solutions for a wide array of civil and defence aircraft.
It has a top market position for civil aviation training, but defence training is a growing category. Forty-two percent of its revenues come from defence training. However, its defence backlog of $11 billion is even larger than its civil business.
The Canadian government has procured a new fleet of 88 F-35A fighter jets. All these new jets will require training and regular pilot support. CAE could see growth from supporting this fleet and other global defence aircraft fleets.
CAE trades with a trailing EV-to-EBITDA ratio of 15. This defence stock looks reasonably attractive given its prospects for high single-digit to low double-digit growth in the years ahead.
