BAE Systems PLC should largely be shielded from any shifts in US defence spending but is also unlikely to see major benefits initially from higher budgets in Europe, analysts say.
Analysts at both Shore Capital and Citi pointed to the FTSE 100 defence group's long-term focus, as looming US spending cuts prompt speculation of hiked security spending in Europe.
“Abrupt changes” for BAE appear unlikely given most sales were long cycle, Citi said, citing discussions with company president Tom Arsenault.
Only around 25% of its US sales were directly linked to the government, Citi added.
Margins should be largely protected in any case of US Department of Government Efficiency-related cuts as a result, according to the bank.
It was noted that UK Prime Minister Sir Keir Starmer is due to meet President Trump in Washington later this week, with media headlines suggesting he will lay out a timeline for the UK moving to 2.5% of GDP on defence by 2030.
"This modest rise (on a fairly extended timeline) is very unlikely to impress the Trump administration... Given such a commitment would be outside the term of the current parliament, questions may be raised as to how much such a commitment would count for."
If Starmer does materially increase the defence spending outlook, the main beneficiaries would be QinetiQ Group PLC (LSE:QQ.) at 66% UK sales and Babcock International PLC (LSE:BAB) at 63% UK sales, with BAE "a lesser beneficiary" at 20%.
The long-tailed spending cycle means any corresponding uptick in European defence spending would take time to seep through to BAE, Shore Cap added.
“We view BAE as a strong business with predictable revenue streams,” analysts said, noting BAE should indeed eventually benefit from higher European budgets.
Shore also noted BAE’s full-year figures last week had matched expectations, leaving it with a ‘hold’ rating and 1,300p fair value target.
Shares were up 2.9% at 1,292p on Monday.