Top 3 ASX Defence Stocks to Watch in 2026 & how to invest

Australia's defence sector continues to gain strategic importance, supported by rising defence spending. For investors researching ASX defence stocks, Australian-listed companies offer exposure to areas such as naval shipbuilding, military technology and communications systems.

Austal Limited (ASX: ASB), Electro Optic Systems Holdings Limited (ASX: EOS) and Codan Limited (ASX: CDA) operate in different parts of the industry. Their recent financial results, order books and business outlooks provide several factors to consider when researching Australian defence stocks in 2026.

Share price movements are only one part of understanding a company's performance. Explore our ASX stock analysis and company updates for additional market perspectives.

Here is a closer look at the three companies, their recent performance, potential growth drivers and investment risks.

Also Read: Best ASX Stocks to Buy Now

1. Austal Limited (ASX: ASB)

Austal Limited (ASX: ASB) is an Australian shipbuilder with operations in naval and commercial vessel construction. Its shipbuilding activities provide exposure to Australia's maritime and defence industries.

On 9 September 2026, Austal announced that it had received a non-binding indication of interest from Wildcat Infrastructure LLC to purchase Austal USA.

The proposed aggregate enterprise value was US1.25billiontoUS1.35 billion, subject to due diligence and further negotiations. The proposal was not final, and Austal indicated that discussions would continue.

FY26 performance

On 31 August 2026, Austal announced its full-year FY26 results, which included:

• Revenue: Increased by 11.3% to around $2 billion.

• EBIT: A loss of $125.2 million, mainly due to onerous shipbuilding contracts.

• Order book: Remained strong at $16.5 billion.

• Ship deliveries: Around six ships delivered during FY26.

• Construction pipeline: 75 ships under construction or scheduled for construction.

The order book provides visibility into future work, although the timing of deliveries, project execution and profitability remain important considerations.

Outlook

Austal is focused on returning to profitability in FY27. The company has also set a target of doubling revenue in its Australasian business over the next five years.

Its future performance will depend on shipbuilding progress, contract execution, production capacity and its ability to improve profitability.

For investors researching ASX defence stocks in 2026, Austal offers exposure to shipbuilding, but its recent EBIT loss highlights the importance of monitoring margins alongside revenue and order-book growth.

2. Electro Optic Systems Holdings Limited (ASX: EOS)

Electro Optic Systems Holdings Limited (ASX: EOS) develops technology used in defence and other specialised applications. Its activities include electro-optical systems and directed-energy technology.

On 25 August 2026, the company published its first-half FY26 results, reporting substantial revenue growth.

1H FY26 performance

Key results included:

• Revenue: Increased from $44.1 million to $168.8 million, a rise of around 283%.

• Gross margin: Reached 58%.

• Underlying EBITDA: Turned positive at $21.6 million.

The company also secured 10 orders worth $303 million during the half. Its unconditional order book stood at $846 million.

EOS has opened a factory for high-energy laser weapons and acquired MARSS in May 2026. These developments represent investments in its technology and business capabilities.

Outlook

EOS continues to pursue opportunities across different markets and provided FY26 revenue guidance of $360 million to $400 million.

If achieved, this would represent record revenue for the company. However, guidance is a target rather than a guaranteed outcome.

Investors following Australian defence stocks may wish to monitor EOS's order conversion, revenue delivery, margins and ability to turn business growth into sustainable earnings.

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3. Codan Limited (ASX: CDA)

Codan Limited (ASX: CDA) operates in communications technology and metal detection. Its communications business provides exposure to specialised technology markets, including defence-related applications.

On 17 September 2026, Codan announced its FY26 results for the year ended June 2026, reporting growth in revenue and earnings.

FY26 performance

The company's reported results included:

• Group revenue: Increased by 30% to $875 million.

• EBITDA: Rose from $183.7 million in FY25 to $288.9 million in FY26.

• NPAT: Increased by 69% to $175.2 million.

• Communications order book: Increased by 50% to $380 million.

• Metal Detection revenue: Reached $362 million, an increase of 42% year on year.

Codan also paid a fully franked final dividend of 29 cents per share on 16 September 2026, taking its full-year dividend to 48.5 cents per share.

Outlook

For FY27, Codan has outlined objectives that include expanding its omni-channel footprint in Metal Detection, continuing product innovation and increasing its Communications segment's market reach.

Its performance across communications and metal detection gives investors exposure to more than one business segment. However, the contribution of defence-related activities should not be confused with the company's total revenue.

Investors researching defence stocks on the ASX should consider Codan's overall business mix, earnings growth, order book and future operating performance.

Also Read: Best ASX Tech Stocks

How to Compare ASX Defence Stocks

A comparison of these ASX defence stocks highlights their different business models and financial performance.

• Austal Limited (ASX: ASB): Focuses on naval shipbuilding, with an order book of $16.5 billion in FY26.

• Electro Optic Systems Holdings Limited (ASX: EOS): Operates in defence technology and reported revenue growth of around 283% in the first half of FY26.

• Codan Limited (ASX: CDA): Operates in communications and metal detection, reporting a 30% increase in FY26 group revenue.

These performance indicators measure different aspects of each business and should not be compared directly. Investors should also assess profitability, valuation, order execution and company-specific risks when researching ASX defence stocks.

These indicators measure different things and should not be treated as directly comparable. Revenue growth, order-book value and profitability each provide different information about a company's performance.

Benefits of Investing in ASX Defence Stocks

Investors researching Australian defence companies may consider several potential benefits:

• Exposure to defence spending: Companies supplying relevant equipment and technology may benefit from industry demand.

• Long-term contract opportunities: Large contracts and order books can provide visibility into future work.

• Specialised technology: Shipbuilding, communications and defence systems offer exposure to distinct areas of the industry.

• Different business models: ASB, EOS and CDA have different operating profiles, allowing investors to compare several types of businesses.

These potential benefits do not guarantee share-price appreciation or future profitability.

Risks of Investing in ASX Defence Stocks

Before investing, consider the risks associated with the sector and each company's financial position.

• Contract execution: Delays, cost overruns and difficult projects can affect margins and profitability, as highlighted by Austal's FY26 EBIT loss.

• Uncertain revenue timing: Orders may take time to translate into revenue and cash flow.

• Valuation risk: A company's share price may already reflect expectations of future growth.

• Business-specific risks: Each company has different operational, technological and market exposures.

• Diversification risk: Investing in a small number of defence-related companies can leave a portfolio exposed to company-specific developments.

Investors should review financial statements, company announcements, valuations and their own risk tolerance before making investment decisions.

How to Buy ASX Defence Stocks

Investors who want to research or purchase shares in Australian-listed defence companies can generally follow these steps:

1. Choose a licensed broker: Select a broker that provides access to the Australian Securities Exchange (ASX).

2. Research the company: Review its latest financial results, announcements, order book, outlook and key risks.

3. Assess the valuation: Compare the share price with relevant earnings, cash flow, growth prospects and other financial measures.

4. Place an order: After opening and funding an account, search for the relevant ASX ticker — ASB, EOS or CDA — and choose an order type.

5. Monitor the investment: Follow company announcements, financial results, contract developments and changes in business outlook.

Share prices can rise or fall, and brokerage fees may apply. The steps above are general information, not a recommendation to purchase any particular stock.

Conclusion

Austal, Electro Optic Systems and Codan provide different forms of exposure to Australia's defence-related industries.

Austal's shipbuilding order book, EOS's first-half revenue growth and Codan's FY26 earnings performance highlight different factors investors may wish to examine when researching ASX defence stocks in 2026.

However, financial performance, valuations, contract execution and company-specific risks remain important considerations. Investors should conduct their own research before making investment decisions.

Source: Company announcements