BAE Systems (LSE: BA.) shares have been one of the FTSE 100’s best buys in recent years. Over the last two years, they’ve risen about 65% versus approximately 2% for the index.
Are they still a great buy today? Or are there better stocks to snap up? Let’s discuss.
Multi-year defence spending boom
Looking at BAE Systems today, there’s a lot to like about the company from an investment perspective, to my mind.
Recently, the group has benefitted from the high level of conflict and tension. According to the Stockholm International Peace Research Institute (SIPRI), world military expenditure hit a record $2.24trn last year.
Looking ahead, I think we can expect spending on defence to remain elevated.
Some analysts think we could be in the midst of a multi-year defence spending boom. For example, analysts at Morgan Stanley see average annual defence budget growth of 5% across Europe all the way out to 2030 (Morgan Stanley has named BAE Systems as its top pick in the sector).
It’s worth noting that in a recent trading update, CEO Charles Woodburn was optimistic about the future. “Order flow on new programmes, renewals and progress on our opportunity pipeline remains strong,” he said.
“Our global presence and diverse portfolio of products and services provide a high visibility for top line growth, margin expansion, and cash generation in the coming years,” he added.
So I think the medium-term outlook for the defence company is quite favourable.
Attractive valuation
As for the stock’s valuation, I believe it’s attractive right now. Currently, analysts expect BAE to generate earnings per share of 59.2p for 2023.
That puts the stock on a forward-looking price-to-earnings (P/E) ratio of 15.1 at present, which isn’t particularly high.
One broker who clearly sees share price upside from here is Jefferies. It currently has a price target of 1,100p for the stock. That’s about 22% above the current share price.
Capital returns also look attractive, to my mind. Not only does the company offer a nice dividend (the yield is currently about 3.2%) but it is also buying back shares. These buybacks should boost earnings per share over time.
Putting this all together, I do think BAE Systems remains one of the best buys in the Footsie.
Share price risk
It’s worth pointing out however that the shares have lost their upward momentum recently. Over the last three months, they’ve fallen about 10%.
I expect them to bounce at some stage and move higher. But there’s a chance the recent downtrend could continue. Sometimes, trends can last longer than expected.
Therefore, if I was looking to buy the shares today, I wouldn’t buy a full position immediately. Instead, I would buy a few shares now and add to my position over time.
The post At 900p, are BAE Systems shares still one of the FTSE 100’s best buys? appeared first on The Motley Fool UK.
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The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
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More reading
Is this one of the best stocks to buy for returns and growth?
3 ‘no-brainer’ FTSE 100 dividend shares I’d buy in July
Is this the best big-picture stock in the FTSE 100?
Here’s BAE Systems’ dividend forecast for the next THREE years
Which of these FTSE 100 dividend stocks should I buy today?
Edward Sheldon has no position in any of the shares mentioned. 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.
BAE Systems (LSE: BA.) shares have been one of the FTSE 100’s best buys in recent years. Over the last two years, they’ve risen about 65% versus approximately 2% for the index.
Are they still a great buy today? Or are there better stocks to snap up? Let’s discuss.
Multi-year defence spending boom
Looking at BAE Systems today, there’s a lot to like about the company from an investment perspective, to my mind.
Recently, the group has benefitted from the high level of conflict and tension. According to the Stockholm International Peace Research Institute (SIPRI), world military expenditure hit a record $2.24trn last year.
Looking ahead, I think we can expect spending on defence to remain elevated.
Some analysts think we could be in the midst of a multi-year defence spending boom. For example, analysts at Morgan Stanley see average annual defence budget growth of 5% across Europe all the way out to 2030 (Morgan Stanley has named BAE Systems as its top pick in the sector).
It’s worth noting that in a recent trading update, CEO Charles Woodburn was optimistic about the future. “Order flow on new programmes, renewals and progress on our opportunity pipeline remains strong,” he said.
“Our global presence and diverse portfolio of products and services provide a high visibility for top line growth, margin expansion, and cash generation in the coming years,” he added.
So I think the medium-term outlook for the defence company is quite favourable.
Attractive valuation
As for the stock’s valuation, I believe it’s attractive right now. Currently, analysts expect BAE to generate earnings per share of 59.2p for 2023.
That puts the stock on a forward-looking price-to-earnings (P/E) ratio of 15.1 at present, which isn’t particularly high.
One broker who clearly sees share price upside from here is Jefferies. It currently has a price target of 1,100p for the stock. That’s about 22% above the current share price.
Capital returns also look attractive, to my mind. Not only does the company offer a nice dividend (the yield is currently about 3.2%) but it is also buying back shares. These buybacks should boost earnings per share over time.
Putting this all together, I do think BAE Systems remains one of the best buys in the Footsie.
Share price risk
It’s worth pointing out however that the shares have lost their upward momentum recently. Over the last three months, they’ve fallen about 10%.
I expect them to bounce at some stage and move higher. But there’s a chance the recent downtrend could continue. Sometimes, trends can last longer than expected.
Therefore, if I was looking to buy the shares today, I wouldn’t buy a full position immediately. Instead, I would buy a few shares now and add to my position over time.
The post At 900p, are BAE Systems shares still one of the FTSE 100’s best buys? appeared first on The Motley Fool UK.
We think earning passive income has never been easier
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
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setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Is this one of the best stocks to buy for returns and growth?
3 ‘no-brainer’ FTSE 100 dividend shares I’d buy in July
Is this the best big-picture stock in the FTSE 100?
Here’s BAE Systems’ dividend forecast for the next THREE years
Which of these FTSE 100 dividend stocks should I buy today?
Edward Sheldon has no position in any of the shares mentioned. 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.
