Citi’s latest note on BAE Systems PLC (LSE:BA.) comes with a small nudge to the target price, but the bigger story is confidence in BAE’s ability to keep growing, not just this year but for many years ahead.
After the half-year results, BAE raised its sales and profit targets again.
Sales are now expected to rise 8–10% this year, up from previous guidance of 7–9%. Operating profit (EBIT) is forecast to climb 9–11%, compared with 8–10% before.
Earnings per share growth stays at 8–10%. The tweak to Citi’s target price mainly reflects currency moves, not any big change in the company’s underlying outlook.
The bigger picture, according to Citi, is about duration.
The bank sees increasing confidence that BAE can sustain high-single-digit growth for a decade or more. That is rare in this sector and, Citi argues, is now the real investment case.
Even if US defence budgets do not rise as quickly as Europe’s (though Citi points out the US is seeing a 13% increase this year), BAE is well-placed to outgrow the market.
The company is overweight in areas that matter most for future spending - think submarines, advanced aircraft, space and cybersecurity.
The shares, up 56% year to date, were off 8p at 1,796p on Friday.