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BAE Systems PLC BA.

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Morningstar’s Analysis

Currency in GBX
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Capital Allocation


BAE Systems Remains on Track To Meet Full Year Guidance; Shares Remain Fairly Valued

Joachim Kotze Equity Analyst

Analyst Note

| Joachim Kotze |

Wide-moat BAE Systems maintains its full year guidance as program execution tracks according to expectations. The group anticipates midpoint revenue and EBIT growth for 2021 of 4% and 7%, respectively, with free cash flow generation in excess of GBP 1 billion. Medium-term free cash flow guidance of more than GBP 4 billion equates to nearly 25% of current market value. BAE Systems has been relatively unaffected by the supply chain issues seen elsewhere in the industry as the group enjoys exposure to long-term programs allowing it to manage supplier lead times more effectively. The group’s broad exposure to platforms and geographies allows for stable and predictable cash flows, underpinned by resilient defense demand and long-term multi-decade contracts. We maintain our GBX 595 (ADR: $32.50) fair value estimate, with shares in fair value territory. A relatively secure 4.2% gross dividend yield makes the stock particularly attractive to income investors.

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Company Profile

Business Description

BAE Systems is a British global defense company. BAE has a dominant position in the U.K., is a top-six supplier to the U.S. Department of Defense, and has a strong presence in key defense markets (eg. Saudi Arabia and Australia). Exposure to programmes is well diversified. BAE derives 45% of sales from services and support and 35% from major programmes such as the F-35 Lightning II and Eurofighter Typhoon fighter jets. The balance of sales is derived from electronic systems and cyber intelligence.

Warwick House, PO Box 87
Farnborough, GU14 6YU, United Kingdom
T +44 1252373232
Sector Industrials
Industry Aerospace & Defense
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 90,000