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Image source: Getty Images <\/p>\n Image source: Getty Images <\/p>\n
BAE (LSE:BA.) shares\u00a0have had a remarkable run. Up over 300% since 2022 and sitting near all-time highs, the British defence giant has been one of the largest beneficiaries of the global rearmament wave.<\/p>\n
With revenue hitting \u00a328.3bn and rising to \u00a333bn in 2026, the momentum\u2019s still there operationally. It has a near-unrivalled position across submarines, combat aircraft, electronic warfare and cyber security. It\u2019s a genuinely exceptional business.<\/p>\n
The snag, as ever, is the price. BAE now trades on 24 times forward earnings. The analyst consensus target sits just 10% above the current price. This doesn\u2019t make BAE a bad investment \u2014 but it does mean investors are paying a full price for a well-known story.<\/p>\n
Long-term defence contracts are a really strong place to be. However, there\u2019s definitely some risk attached to the valuation.<\/p>\n
Under-the-radar alternative <\/p>\n
This next one\u2019s a very different kind of company. It\u2019s small, American, and almost entirely off the radar for UK investors. Innovative Aerosystems (NASDAQ:ISSC) makes advanced avionic systems for commercial, business, and military aircraft. This includes the F-16 digital flight control computer and a new customisable cockpit platform called the Liberty Flight Deck.<\/p>\n
Formerly called Innovative Solutions and Support, there\u2019s a lot going for it. The operating margin of 29.4% is market leading and the balance sheet is rock solid. However, it\u2019s trading at 26.7 times forward earnings.<\/p>\n
But here\u2019s the real thesis: management\u2019s set a long-term target of $250m in revenue with EBITDA margins of 25%-30%. Current revenue is around $90m.<\/p>\n
If they get anywhere close to that, the stock looks extraordinarily cheap by those future standards. Only three brokers cover it, which is arguably the point: analysts haven\u2019t caught up yet.<\/p>\n
That doesn\u2019t mean there isn\u2019t risk though. A pull-forward of F-16 revenue from 2026 into 2025 means near-term numbers may look soft. It\u2019s also a small company and very volatile.<\/p>\n
Nonetheless, if it can hit those targets, we\u2019re looking at a stock that\u2019s trading around 7-8 times forward earnings (it\u2019s just a few years away).<\/p>\n
Often overlooked <\/p>\n
Most investors won\u2019t have heard of Innovative Aerosystems, but they will know Airbus. It\u2019s a quality company and one half of the only viable global duopoly in commercial aviation. Boeing\u2018s well-documented troubles have contributed to give Airbus a backlog that stretches years into the future and pricing power it hasn\u2019t enjoyed in decades.<\/p>\n
What\u2019s interesting is that despite this structural advantage, the stock\u2019s been derated meaningfully. On 2027 numbers, it trades on 18 times earnings, falling to under 15 times by 2028. The balance sheet also carries net cash of over \u20ac12bn. The 2.1% dividend yield is also worth watching.<\/p>\n
The main risk is operational rather than strategic. Airbus has struggled persistently to ramp up production rates to match its order book, with supply chain bottlenecks a stubborn constraint.<\/p>\n
Nonetheless, like ISSC, it\u2019s well worth considering from a valuation perspective. I also like BAE, but the richer valuation suggests investors should think carefully about the entry price.<\/p>\n
The post I like BAE shares, but they aren\u2019t cheap! Here are 2 potentially-better-value alternatives<\/a> appeared first on The Motley Fool UK<\/a>.<\/p>\n More reading<\/p>\n James Fox has positions in Airbus and Innovative Aerosystems. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.<\/a><\/p>\n Motley Fool UK 2026<\/p>\n","protected":false},"excerpt":{"rendered":"Image source: Getty Images BAE (LSE:BA.) shares\u00a0have had a remarkable run. Up over 300% since 2022 and sitting…\n","protected":false},"author":2,"featured_media":44473,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[21224],"tags":[21234,8160,7921,25595],"class_list":["post-51415","post","type-post","status-publish","format-standard","has-post-thumbnail","category-bae","tag-bae","tag-bae-systems","tag-forward-earnings","tag-innovative-aerosystems"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116656031846802148","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/51415","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=51415"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/51415\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/44473"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=51415"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=51415"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=51415"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}