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BAE Systems shares take-off as Morgan Stanley ups rating to ‘overweight’ from ‘equal-weight’

Morgan Stanley’s analysts said: “The defence spending backdrop is supportive, contract wins have improved visibility and we think earnings growth prospects are now higher than at any point in the last five years”
Typhoon fighter jet
They added: “The multiple has been slow to reflect this, and factoring in longer-term growth leads us to increase our target to 750p”

Morgan Stanley gave a boost to BAE Systems PLC (LON:BA.) on Monday, upgrading its rating for the blue-chip defence and civilian aircraft contractor to ‘overweight’ from ‘equal-weight’ following recent first-half results.

The US investment bank also hiked its target price for the FTSE 100-listed firm to 750p from 550p, with the stock currently changing hands at 633.60p each, up 1.3% on Friday's close.

READ: BAE Systems maintains earnings guidance after mixed first-half

In a note to clients, Morgan Stanley’s analysts said: “The defence spending backdrop is supportive, contract wins have improved visibility and we think earnings growth prospects are now higher than at any point in the last five years.”

They added: “The multiple has been slow to reflect this, and factoring in longer-term growth leads us to increase our target to 750p.”

BAE’s interims, posted on August 1, were a mixed bag, with strong performances in some areas offset by disappointments in others.

The group said its underlying earnings per share (EPS) for the full-year would be on a par with 2017 after it posted underlying EPS of 19.8p in the first half of 2018, down from 20.2p in the first half of last year.

Its sales at £8.8bn, were down 3% year-on-year on a constant currency basis, as a result of reduced production activity for the Typhoon fighter jet.

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