Company Reports

Escalating geopolitical tensions are driving a multidecade rearmament cycle. After decades of underspending, Europe is rebuilding sovereign capacity in air, land, naval, and missile ecosystems. BAE Systems remains at the center of this shift through incumbency on multidecade programs.

BAE Systems’ first-half sales rose 9% at constant currency to GBP 15.8 billion, underlying EBIT rose 11% to GBP 1.7 billion, and orders reached GBP 16.4 billion. Management raised its 2026 growth outlook for sales to 8%-10%, EBIT to 10%-12%, and free cash flow to over GBP 2 billion.

Escalating geopolitical tensions are driving a multidecade rearmament cycle. After decades of underspending, Europe is rebuilding sovereign capacity in air, land, naval, and missile ecosystems. BAE Systems remains at the center of this shift through incumbency on multidecade programs.

Escalating geopolitical tensions are driving a multidecade rearmament cycle. After decades of underspending, Europe is rebuilding sovereign capacity in air, land, naval, and missile ecosystems. BAE Systems sits at the center of this shift through incumbency on multidecade programs.

BAE Systems reported 2025 sales of GBP 30.7 billion (10%-plus constant currency), underlying EBIT of GBP 3.3 billion (12%-plus), and free cash flow of GBP 2.2 billion, supported by a record backlog of GBP 83.6 billion and order intake of GBP 36.8 billion (book/bill of 1.2 times).

Escalating geopolitical tensions are driving a multidecade rearmament cycle. After decades of underspending, Europe is rebuilding sovereign capacity in air, land, naval, and missile ecosystems. BAE Systems sits at the center of this shift through incumbency on multidecade programs.

Reports of the US-driven Russia-Ukraine peace deal triggered a downturn in European defense stocks, with names under our coverage down between 10%-20% since October highs.

BAE raised 2025 sales and EBIT guidance to 8%-10% and 9%-11%, respectively, after 11% revenue and 13% EBIT growth. EPS was held flat due to higher French tax on MBDA and fewer shares repurchased. Free cash flow guidance was raised to over GBP 1.1 billion.

We raise our fair value estimate for BAE Systems from GBX 1,550 to GBX 2,250 to reflect a structurally stronger growth outlook, underpinned by maintained global rearmament and deepening integration with European defense priorities. The UK’s reentry into EU-funded programs via the EUR 150 billion EDIS framework marks a turning point in regional alignment. While the fund remains below what we consider sufficient to address Europe’s defense capability gap, it lays a critical foundation for broader industrial coordination and larger-scale future instruments.

Escalating global security concerns, intensified by the war in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.

Escalating global security concerns, intensified by the war in Ukraine, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.

Wide-moat BAE Systems reported another strong year with the backlog reaching a record GBP 77.8 billion and sales and EBIT increasing by 14% year on year, in line with expectations.

We've updated our fair value estimate for BAE Systems to GBX 1,550/USD 75 per share from GBX 1,490/USD 74 to reflect increased European defense spending catalyzed by Donald Trump's election as US president. While NATO's defense spending target of 2% of GDP has been a longstanding benchmark, we believe it is inadequate, given decades of underinvestment. Trump's call for NATO allies to raise their contributions could drive substantial increases in defense budgets. We expect European defense spending to rise from 1.7% of GDP in 2023 to 2.4% by 2029 and 2.8% by 2032.

Escalating global security concerns, intensified by the Ukraine conflict, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.

Escalating global security concerns, intensified by the Ukraine conflict, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.

BAE Systems reported strong financial performance for the first half of 2024, with sales and EBIT increasing by 13% with every sector contributing to it. Following the strong results for the first half, the company has increased its full-year guidance by 200 basis points, with sales now expected to increase by 12%-14% and EBIT expected to mirror revenue performance. We maintain our fair value estimate.

We are increasing our fair value estimate for wide-moat BAE from GBX 1,330 to GBX 1,490 on the back of higher budgeted defense spending for Europe. Overall, the latest industry estimates show a cumulative increase of over USD 500 billion in European defense for the next decade compared with last year's predictions. Finally, we are incorporating the new growth estimates in our long-term earnings growth rate, increasing it from 3% to 5%.

Escalating global security concerns, intensified by the Ukraine conflict, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.

Wide-moat BAE Systems upgraded 2024 guidance on the back of another strong set of results for 2023, with a record backlog of GBP 69.8 billion, representing more than 3.5 times annual sales. After incorporating the updated guidance, we are increasing our fair value estimate from GBX 1,170 to GBX 1,330 on the back of increased profitability for the air and platform divisions. In the midterm, we expect margin for the air sector and platforms to slightly increase from current levels driven by platforms running at full phase production and a higher share of aftermarket revenue.

Escalating global security concerns, intensified by the Ukraine conflict, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE Systems is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects.