Deutsche Bank believes that doom and gloom about defence spending cutbacks has been overdone, and the valuation for BAE Systems 'remains too compelling to ignore'.

Cobham, however, has almost reached Deutsche's target price and consequently the stock has been downgraded from 'buy' to 'hold'. The target price has been nudged up to 245p from 220p.

The German bank has lifted its sum of the parts price target for BAE Systems from 420p to 435p. 'Some positive potential catalysts exist in Q1 [first quarter] which should provide reassurance that near-term compression in US Defence budgets will not be as severe as feared,' Deutsche suggests.

With Nestle ruling itself out of the running for Cadbury and Kraft offering a partial cash alternative for the Crème Egg maker, Ferrero and Hershey have effectively been removed from the bid battle, broker Charles Stanley reckons.

'Whilst we imagine that vague speculation will continue regarding Hershey (or the Hershey Trust's) apparent interest in making a counterbid for Cadbury largely, in our view, to preserve the status quo in global confectionary manufacture, Nestle's decision effectively leaves Kraft as the overwhelming front-runner,' Charles Stanley analyst Jeremy Batstone-Carr states. As such, the broker sees no reason to revise its 'reduce' recommendation for Cadbury, which it believes has a decent chance of surviving as an independent entity if its trading update on 15 January delivers the goods.

'Note that as of yesterday, Kraft's existing cash + shares offer valued Cadbury at c738p per share, a slight decline from the value of the offer on 9th November reflecting weakness in the Kraft share price,' the broker observed.

'In a separate development the EU competition authorities are believed to be preparing to approve the Kraft approach in the wake of concessions made by Kraft relating to those markets where competition is regarded as an issue,' the broker added.

Merrill Lynch is at a loss to see where the upside is for supermarket chain Sainsbury at its current pricing level, and has cut the stock to 'underperform' from 'neutral'.

On the plus side, the broker says there is limited downside, thanks to asset backing and the continued presence on the shareholder register of the Qatar Investment Philosophy will keep bid speculation bubbling.

'The story the shares crave, one of improving margins, remains on hold whilst the group integrates new space... until that space matures, group returns are likely to remain modest,' Merrill Lynch predicts.

The broker has a price target of 335p for the stock, based on a 2010 sector price/earnings ratio of 13.5.

Related share prices
Sainsbury (J) (SBRY) share price
Cobham (COB) share price
Beale (BAE) share price