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BAE Systems stock forecast: Can the defence stock soar even higher?

By Rob Griffin

Edited by Alexandra Pankratyeva

15:03, 26 July 2022

Aerospace carriers in flight
Aerospace carriers in flight – Photo: BAE Systems

BAE Systems (BA), the UK-listed aerospace and defence company, has seen its stock price soar 40% since the start of the year as global international tensions have risen.

The remarkable return has made BA stock a star performer on the FTSE 100 (UK100) and one of only 30 companies on the blue-chip index to be in positive territory over the past six months.

But why has it risen so sharply and is this sustainable? Are the shares now looking overvalued or is there still plenty of potential for a further uplift?

In this BAE Systems stock forecast, we take a look at the reasons behind the bumper year, analyse its recent results, and ask stock market analysts for their predictions.

BAE Systems outlook: What does the company do?

BAE Systems, which employs 90,500 people in more than 40 countries, is a defence giant whose interests range from electronic warfare systems to armoured vehicles. 

This includes designing and manufacturing aircraft, partnering on the development of future technologies, and providing both electronic and cyber security & intelligence systems.

The company has understandably benefitted from increased defence spending in the wake of Russia’s invasion of Ukraine earlier this year.

BA stock price: How has it performed?

The BA stock price has soared 40.6% this year from its £5.54 level at the start of January to £7.80 as London markets closed on 22 July 2022.

Data from Digital Look, covering the past six months, shows the stock as the best performer on the FTSE 100 index with a 28.79% rise (as of 25 July). 

Over the longer term, the company has generated trailing returns of 17.59% over the past three years and 12.51% over the past 10 years, according to Morningstar to 22 July 2022.

BAE Systems (BA) historical price chart

Latest results

BAE achieved underlying earnings before interest and tax of £2.2bn in 2021 – comfortably ahead of the £2.04bn achieved the previous year.

BAE’s chief executive Charles Woodburn said the company was continuing to evolve the business, increasing investments in advanced technologies to meet its customers’ priorities.

“Our diverse portfolio, together with our focus on programme execution, cash generation and efficiencies, is helping us to navigate the challenging operating environment, meaning we are well positioned for sustained top line and margin growth in the coming years,” he said.

Trading update

In a trading update issued in early May, the group said its full year 2022 guidance was unchanged with sales expected to be up 2-4% and underlying EBIT (earnings before interest and tax) up 4-6%.

“We continue to expect a strong year of order intake and order flow to date has been positive especially on our long-term programmes,” it said in a statement.

BAE also highlighted the “pipeline of opportunities” that existed across all sectors and emphasised it was looking to support “key customers and allies” in addressing the heightened threat environment.

“Our geographic diversity positions us strongly as many of the countries in which we operate have announced or are making plans to increase spending to counter the elevated and evolving threat environment on multiple fronts,” it added.

Importance of defence spending

In a recent video address, BAE chairman Sir Roger Carr pointed out that investment in defence depended on the assessment of risk and society’s moral judgement on the industry.

“It is clear that the illegal and immoral conflict in Ukraine has thrown the need for defence and security into sharp focus and the public perception to a more supportive position,” he said.

While Sir Roger emphasised that everyone was hoping for a “quick and peaceful end to the conflict”, he argued that the situation has highlighted the industry’s importance.

“It is important that the case for defence should continue to be made with conviction and vigour, for the sake of nations’ long term security and prosperity in this very uncertain world,” he added.

Latest BAE Systems news

The UK’s Ministry of Defence has just a £2.35bn investment in a package of new capabilities that will be equipped on Royal Air Force Typhoon aircraft. 

In a statement, it said the “world-leading electronic warfare capability” would allow the aircraft to “simultaneously detect, identify and track” multiple targets in the air and on the ground.

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Jeremy Quinn, Minister for Defence Procurement, said the technological advancements will maintain “the cutting-edge capabilities” of the Typhoon.

“It’s vital the UK remains at the forefront of military capabilities to be able to deter and defend,” he said.

BAE Systems stock predictions: Where will the price go next?

What should investors expect from a BAE Systems share price forecast?

The stock was rated a ‘moderate buy’, based on six analyst ratings compiled by MarketBeat as of 25 July. Four had it as a ‘buy’, and two had ‘hold’ recommendations in place. 

BAE Systems (BA) stock analyst ratings and price targets

The consensus was that the stock could rise almost 12% to £8.71 over the next 12 months from its £7.80 level at the close on 22 July 2022.

The most optimistic predictions suggested the BA stock price could reach £9, while even the most pessimistic expected it to have increased 9% to £8.50 in a year’s time.

According to the BAE Systems stock forecast for 2022 from the algorithmic forecasting of Wallet Investor, the stock could hit £8.10 by the end of the year.

Its BAE Systems stock forecast 2025 suggested BA stock could reach £9.71 over the next three years.

Meanwhile, the site’s five year forecast had the share price at £10.92, which would be a 40% uplift over the current £7.80 level.

BAE Systems stock forecast: What do the analysts say?

In a recent BAE Systems stock forecast, Joachim Kotze, equity analyst at Morningstar, argued that BAE has the necessary levers at its disposal to offset short-term headwinds. 

“Looking further out, the company seems confident that it will benefit from higher defence spending as a result of rising global threats spurred by the Ukraine war,” he wrote.

Kotze pointed out that Germany’s announcement of a €100bn special defence fund and its commitment to increase defence spending to 2% of GDP (currently 1.5%) should prompt other NATO nations in the region to follow by meeting, or even exceeding, the minimum spending requirements. 

“The group’s incumbent position on the European Typhoon fighter jet program, its share in MBDA missiles and US foreign military sales to the region on participating programs places the group in a good position to capture higher spending in the region,” he added.

He also highlighted the recent budgetary announcements in the US and UK that confirmed support for the group’s long-term programs such as the F-35 fighter jet, military vehicles, and submarines. 

“In the current quarter the company reported strong order flow, especially on its long-term programs, which should support revenue growth for years to come,” he said.

Danni Hewson, financial analyst at AJ Bell, is also optimistic, despite highlighting the current share price level as the only current negative factor.

“Though it has fallen fractionally from May’s record high there will be some investors wondering if its finally topped out or if the current state of the world means we’ve not seen anything yet,” she told Capital.com.

However, she countered that by pointing out that many people think the stock price has further to go, especially on the back of increased defence spending.

“BAE’s numbers look good across the board, but there are a couple of things to consider, not least the strength of the dollar and the increased costs of both materials and all those clever people it employs,” she said.

When looking for BAE Systems stock predictions, always remember that analysts and algorithm-based projections can be wrong. Forecasts and analysts’ expectations shouldn’t be used as a substitute for your own research. 

Always conduct your own due diligence and remember that your decision to trade should depend on your risk tolerance, portfolio size and goals, and experience in the market. Keep in mind that past performance does not guarantee future returns. And never trade money you cannot afford to lose. 

FAQs

Is BAE Systems a good stock to buy?

The company is an aerospace and defence giant that has been a beneficiary of the increased global tensions over the past six months. Its share price has strongly risen this year, but you must carry out your own analysis to decide if it could rise further in the future. Keep in mind that past performance does not guarantee future returns. And never trade money you cannot afford to lose.

Will BAE Systems stock go up or down?

This depends on a number of variables. It’s crucial to do your own research to form an opinion of a company’s performance and likelihood of achieving analysts’ targets. You must also remember that markets are volatile and past performance is no indication of future returns. 

Should I invest in BAE Systems stock?

Whether BA stock is a suitable investment for you will depend on your personal research, trading strategy and investment needs. You need to perform your own due diligence and decide if the stock meets your needs and appetite for risk. Keep in mind that past performance does not guarantee future returns. And never trade money you cannot afford to lose. 

 

Markets in this article

BA.
BAE Systems plc
12.592 USD
-0.115 -0.910%
UK100
UK 100
8145.8 USD
-22.6 -0.280%

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