BAE Systems (BA) AI Stock Analysis

• Market Cap: £61.59B
• Dividend Yield: 1.99%
• Average Volume (3M): 7.09M
• Price to Earnings (P/E): 30.7
• Beta (1Y): 0.88
• Revenue Growth: 11.60%
• EPS Growth: 8.03%
• Country: UK
• Employees: 107,400
• Sector: Industrials
• Sector Strength: 72
• Industry: Aerospace & Defense
• EPS (TTM): 0.39
• Shares Outstanding: 2,998,895,000
• 10 Day Avg. Volume: 8,156,017
• 30 Day Avg. Volume: 7,094,591
• PEG Ratio: 4.05
• Price to Book (P/B): 4.36
• Price to Sales (P/S): 1.81
• P/FCF Ratio: 21.60
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: £2,200.33
• Price Target Upside: 4.18% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 7
• EPS Forecast (FY): 0.83
• Revenue Forecast (FY): £32.84B

• Rating: 71 Outperform
• Price Target: 2,332.00p ▲(10.42% Upside)
• Action: Upgraded Date: 02/19/26
• Date: Action: Upgraded 02/19/26

The score is driven primarily by solid financial performance (steady revenue growth and strong free cash flow), supported by positive technical trend and momentum. The main offset is valuation, with a relatively high P/E and only a modest dividend yield, plus some fundamental watch-items in 2025 margin pressure and higher debt.

Positive Factors

Free cash flow strength

Sustained, high free cash flow (c. £2.4B and ~70%+ of net income) provides durable internal funding for R&D, contract execution, dividends or debt reduction. Strong cash generation improves resilience through defence spending cycles and supports long-term strategic investments.

Consistent multi-year revenue growth

Multi-year revenue expansion from £19.3B to £28.3B reflects sustained demand across defence platforms and services. Persistent top-line growth supports scale, backlog visibility from government contracts and underpins operating leverage and long-term earnings stability.

Long-duration, programme-based contract wins

Multi-year IDIQ and repeat programme awards create predictable revenue windows and long-term customer relationships. Contracts with ordering periods to 2031 and multiple defence awards provide structural revenue visibility and production/service workstreams lasting several years.

Negative Factors

Rising leverage since 2023

Debt increasing materially reduces financial flexibility. With total debt up to £10.6B and debt/equity near 0.9, the company faces higher interest and refinancing risk if margins or cash conversion deteriorate, constraining capacity for strategic investments or shocks.

Margin volatility and 2025 step-down

A marked margin decline in 2025 signals cost, mix or one-off pressures that can materially lower operating cash available for reinvestment. If structural, margin compression would weaken profitability resilience across defence cycles and complicate servicing higher debt levels.

Uneven cash-conversion / working-capital volatility

Intermittent dips in operating cash flow and modest coverage highlight working-capital sensitivity in large, programme-based contracts. Such timing volatility can strain liquidity during peak capex or contract funding needs, particularly with elevated leverage and long production cycles.

BAE Systems Business Overview & Revenue Model

Company Description

BAE Systems plc provides defense, aerospace, and security solutions worldwide. The company operates through five segments: Electronic Systems, Cyber & Intelligence, Platforms & Services (US), Air, and Maritime. The Electronic Systems segment offers electronic warfare systems, navigation systems, electro-optical sensors, military and commercial digital engine and flight controls, precision guidance and seeker solutions, military communication systems and data links, persistent surveillance systems, space electronics, and electric drive propulsion systems. The Cyber & Intelligence segment provides solutions to modernize, maintain, and test cyber-harden aircraft, radars, missile systems, and mission applications that detect and deter threats to national security; systems engineering, integration, and sustainment services for critical weapons systems, C5ISR, and cyber security; and solutions and services to intelligence and federal/civilian agencies. It also offers data intelligence solutions to defend against national-scale threats, protect their networks, and data against attacks; security and intelligence solutions to the United Kingdom government and allied international governments; anti-fraud and regulatory compliance solutions; and enterprise-level data and digital services. The Platforms & Services (US) segment manufactures combat vehicles, weapons, and munitions, as well as provides ship repair services and the management of government-owned munitions facilities. The Air segment develops, manufactures, upgrades, and supports combat and jet trainer aircraft. The Maritime segment designs, manufactures, and supports surface ships, submarines, torpedoes, radars, and command and combat systems; and supplies naval gun systems. It also supplies naval weapon systems, missile launchers, and precision munitions. The company was founded in 1970 and is based in Farnborough, the United Kingdom.

How the Company Makes Money

BAE Systems generates revenue through a combination of government contracts, sales of defense equipment and technology, and long-term service agreements. The majority of its income comes from defense contracts with governments, particularly in the U.S. and the U.K., where it is a key supplier to military programs. The company also benefits from international sales and partnerships with other defense contractors and governments. Additionally, BAE Systems earns money through maintenance, repair, and upgrade services for existing military equipment, which provides a stable revenue stream over time. Strategic collaborations and joint ventures with other firms and governments further enhance its competitive positioning and revenue potential.

BAE Systems Financial Statement Overview

Summary

Strong multi-year revenue growth and robust free cash flow support overall fundamentals, but the sharp 2025 step-down in gross/operating margin and rising leverage since 2023 reduce the score.

Income Statement

Revenue has grown steadily from 2020 to 2025 (roughly £19.3B to £28.3B), supporting a solid, improving earnings base. Net profit margins have been fairly stable in the mid-to-high single digits (about 6.7%–9.0%), and operating profitability has generally held up. The key weakness is margin volatility in the latest year: 2025 shows a sharp drop in gross and operating margin versus 2023–2024 levels, suggesting either mix/one-offs or cost pressure that bears monitoring despite continued revenue growth.

Balance Sheet

The balance sheet looks workable with equity broadly stable (~£11.8B in 2025) and returns on equity consistently strong (mid-to-high teens in recent years). However, leverage has trended higher since 2023: total debt rose to ~£10.6B in 2025 from ~£6.5B in 2023, pushing debt-to-equity close to ~0.90. This is not extreme for the industry, but it reduces flexibility if profitability or cash conversion weakens.

Cash Flow

Cash generation is a clear strength: free cash flow remains robust (about £2.4B in 2025) and grew strongly year-over-year in 2025, with free cash flow running at ~70%+ of net income across the period—supporting earnings quality. The main drawback is some uneven conversion and coverage: operating cash flow dipped in 2025 versus 2024 and the provided cash-flow coverage measure remains modest, indicating working-capital or timing volatility even as overall free cash flow stays healthy.

Breakdown	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	28.34B	26.31B	23.08B	21.26B	19.52B
Gross Profit	2.50B	17.23B	15.10B	5.91B	5.19B
EBITDA	3.67B	3.97B	3.45B	2.81B	2.91B
Net Income	2.06B	1.96B	1.86B	1.59B	1.76B
Balance Sheet
Total Assets	37.68B	38.14B	32.06B	31.46B	27.14B
Cash, Cash Equivalents and Short-Term Investments	3.62B	3.38B	4.11B	3.36B	3.11B
Total Debt	10.56B	10.15B	6.48B	6.86B	6.36B
Total Liabilities	25.74B	26.36B	21.34B	19.06B	18.66B
Stockholders Equity	11.78B	11.62B	10.56B	11.21B	7.44B
Cash Flow
Free Cash Flow	2.38B	2.76B	2.80B	2.00B	1.82B
Operating Cash Flow	3.30B	3.92B	3.76B	2.70B	2.28B
Investing Cash Flow	-919.00M	-5.27B	-541.00M	-548.00M	-14.00M
Financing Cash Flow	-2.26B	695.00M	-2.19B	-2.06B	-1.99B

BAE Systems Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 2112.00
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For GB:BA, the sentiment is Positive. The current price of 2112 is above the 20-day moving average (MA) of 2012.97, above the 50-day MA of 1952.40, and above the 200-day MA of 1864.61, indicating a bullish trend. The MACD of 53.49 indicates Negative momentum. The RSI at 62.22 is Neutral, neither overbought nor oversold. The STOCH value of 68.01 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for GB:BA.

BAE Systems Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
RR	76 Outperform	£112.37B	19.21	604.85%	0.91%	9.62%	146.74%
BA	71 Outperform	£61.59B	30.70	17.90%	1.99%	11.60%	8.03%
BAB	68 Neutral	£6.73B	23.72	46.10%	0.56%	7.36%	48.93%
SMIN	66 Neutral	£8.56B	32.04	12.85%	1.93%	-6.93%	18.57%
Sector *	63 Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%
CHG	63 Neutral	£1.44B	30.00	14.44%	1.64%	-2.53%	22.25%
QQ	58 Neutral	£2.65B	-13.25	―	2.00%	-4.59%	-256.51%