The FTSE 100-listed arms maker BAE Systems PLC (GB:BA) has consistently grown over the past few years. Its shares have risen 30% so far in 2023. The upward momentum for the stock began with Russia’s invasion of Ukraine in February 2022. The ongoing tensions between Israel and Hamas have further led to an increase in the defence budgets of the countries, putting the spotlight on defence stocks. Consequently, analysts remain bullish on BAE Systems’ prospects and the share price, considering its strong order book.
BAE Systems is a British manufacturer and supplier of aerospace and defence products. The company has a global presence in around 40 countries.
Let’s take a look at the details.
Favourable Outlook and Strong Order Book
Last month, BAE Systems released its trading update, stating that it is on track to deliver another year of sales and earnings growth. The company kept its guidance, disclosed during the first half results for FY23, unchanged. It expects full-year sales to grow by 5-7% from £23.2 billion in 2022. The underlying EPS is expected to increase by 10-12% from 55.5p in 2022.
The company’s strong order intake remains the highlight among its numbers. The company secured order bookings worth over £30 billion this year, as of November 13. The company’s order backlog stood at £66.2 billion as of June 2023.
Bullish Analyst
Yesterday, analyst George McWhirter from Berenberg Bank reiterated his Buy rating on BAE Systems stock, stating that the company is poised for “another good year.” He also increased his price target on the stock from 1,170p to 1,220p, predicting a 12% upside in the share price.
McWhirter believes BAE Systems is well-positioned to achieve a 10% compound annual growth rate in EPS over the mid-term. This is supported by “mid-to-high single-digit organic revenue growth, steady margin expansion, and low single-digit accretion from the ongoing share buyback.”
Berenberg expects the company’s $5.6 billion acquisition of Ball Aerospace to be another driving force for the stock. The acquisition is expected to close in the second half of 2024. The deal is seen as a move to enhance the company’s presence in the fast-growing segments of the U.S. defence market.
Is BAE System a Good Buy?
According to TipRanks, BA stock has received a Strong Buy consensus rating based on a total of six recommendations, of which five are Buy. The BAE share price target is 1,240.54p, which is 14% above the current trading levels.
