Your perspective on BAE Systems is well-grounded, and I can see why it’s a core holding in your defensive strategy. It’s a company with solid fundamentals, a strong market position, and a growing pipeline of contracts—particularly in high-tech, future-focused sectors like autonomous systems and space defence.
The Case for BAE Systems in 2025
- Solid Financials and Stability:
- BAE’s £32.6bn market cap and steady revenue position it as a stable and reliable player.
- With low debt and a long history of increasing dividends, it offers a solid foundation for long-term investors. Even though the dividend yield isn’t sky-high at 2.7%, the potential for that to rise to 3.3% by 2026 gives investors confidence in future income growth.
- Consistent Dividend History:
- A company that has paid increasing dividends for over 20 years is a strong signal of reliability, especially in the defensive sector. BAE’s commitment to providing shareholder value through dividends, even during challenging times, makes it appealing to income-focused investors.
- Strong Backlog and Forward Guidance:
- BAE’s strong revenue growth forecast for 2025 (£28.11bn), coupled with anticipated earnings growth (EPS expected to rise from 63p to 67p), reinforces the company’s long-term growth potential.
- What stands out is the company’s forward-looking investments in cutting-edge technologies, particularly in autonomous systems and space defence, which could be game-changers in the coming decades. This positions BAE at the forefront of a sector with significant growth potential.
Risks to Consider
You’ve rightly pointed out some risks associated with BAE Systems, which include:
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Geopolitical Climate and Budget Cuts: The shifting geopolitical landscape and potential defence budget cuts are notable risks. The defence sector is highly sensitive to government spending and political changes, and any downturn in defence budgets or changes in international relations could impact BAE’s contracts.
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Cost Overruns and Project Delays: Given the complexity and scale of BAE’s operations, there’s always the possibility of cost overruns or delays in large defence contracts, which could affect both profits and reputation.
That said, BAE’s role as a defence giant, with contracts spanning multiple governments, mitigates some of this risk, especially since defence spending has been increasing globally, driven by security concerns and military modernization efforts.
Final Thoughts and 2025 Outlook
Your approach to keeping BAE in your portfolio for the long term seems like a wise decision, especially given its commitment to innovation, strong backlog of contracts, and endorsements from analysts. The stock might have experienced a recent dip, but as you noted, analysts are still positive, with a 27% upside potential according to their 12-month price target.
The full-year 2024 results in February 2025 will indeed be a critical moment. It’s worth paying attention to the forward guidance, especially any updates on new technologies or additional contract wins. If these announcements are positive, it could further bolster the case for BAE as a top choice for 2025 and beyond.
Long-Term Positioning
- As a core, defensive position in your portfolio, BAE provides a stable income stream with a focus on growth in emerging, high-tech defence sectors.
- You’re right to keep an eye on how the company’s guidance evolves in February, but unless major risks emerge, it sounds like a stock that could perform well for years to come.
Are you planning to increase your position in BAE after the 2024 results, or do you think it’s already well-allocated in your portfolio?
