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BAE Systems (LSE:BA.) is back in focus after its FAST Labs unit completed Phase 1 of DARPA’s THREADS program and secured Phase 2 funding, highlighting progress in high performance RF electronics and thermal management technology.
See our latest analysis for BAE Systems.
The THREADS progress sits alongside a strong run in BAE Systems’ shares, with a 30 day share price return of 24.55% and a year to date share price return of 28.73%. The 5 year total shareholder return of 348.36% points to momentum that has been building over a longer horizon despite occasional setbacks such as the recent US export control penalty.
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After BAE Systems’ sharp share price move and only a modest gap to analyst targets, the wider range of fair value estimates becomes more important. Is the recent jump already pricing in most of that upside?
Most Popular Narrative: 3% Undervalued
BAE Systems closed at £22.58 compared with a narrative fair value of £23.23, so the latest consensus view sees a small valuation gap that still matters after the recent rally.
The company’s order backlog has surged to £75 billion, with a pipeline of new opportunities partly fueled by higher defense spending commitments across NATO, the US, UK, Europe, and Indo-Pacific (for example, the UK targeting 3.5% of GDP on defense by 2035 and Japan doubling spending by 2027). This provides visibility on future revenues and supports topline growth for multiple years.
Curious what sits under that headline fair value for BAE Systems. Analysts are incorporating faster revenue growth, higher margins and a richer earnings multiple than the wider sector. Want to see how those moving parts fit together and which year contributes most to the valuation.
Result: Fair Value of £23.23 (UNDERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, BAE Systems investors still need to watch for contract concentration and capacity bottlenecks that could delay the conversion of the £75b backlog into revenue and cash flow.
Find out about the key risks to this BAE Systems narrative.
Next Steps
The optimism in this BAE Systems story is clear, so do not wait around to form your own view based on the underlying data and assumptions. To see what is driving that optimism, review the 4 key rewards
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include BA.L.
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