BAE Systems plc (LON:BA) is in the cross hairs of heavyweight broker JP Morgan Cazenove, which says the FTSE 100 defence and aerospace giant is lagging behind peers and has downgraded the stock.
BAE is cut to 'underweight' by the broker and the target put at 550p from 555p previously.
Shares are today down 2.25% at 571.87p, making it among the top five Footsie losers.
READ: BAE Systems sees 2017 sales and underlying earnings rise, but guides for flat earnings in 2018
Yesterday, the firm posted an increase in sales and earnings for full-year 2017 but said it expected 2018 underlying earnings to be flat, which was not what analysts had forecast.
"BAE’s lacklustre guidance for 2018 EBITA and FCF (free cash flow )suggests that, for the foreseeable future at least, it will continue to underperform its peers in US defence and in European civil aero," said JP Morgan analyst David Perry.
He reckons the US portfolio can grow over 5% per year for several years but UK sales look flat at best and defence export sales are unpredictable by nature.
"BAE needs a new export Eurofighter (EF) order to fill a hole in its delivery schedule from 2019-21," notes the analyst.
Based on channel checks, the broker says it worries that Saudi Arabia won't order EFs (Eurofighter) in the coming year, he added.
BAE expects to generate free cash flow of £1bn per year on average in 2017-18. It pays out £700mln a year in dividends, leaving little left over for higher investment, M&A, or buybacks, said Perry.
"Many of BAE’s peers are currently making major strategic acquisitions and we fear BAE will fall further behind these peers."