Tthe BAE Systems (LSE: BA.) share price has had a poor run by its standards, up just 2.7% in the last 12 months. That’s way behind the FTSE 100 as a whole, which climbed an impressive 19% with dividends on top.
BAE Systems doesn’t even offer the consolation of a generous income. The trailing dividend yield is a modest 1.88%. So what’s gone wrong?
If anything, it’s a victim of its own success. Over five years, the shares are up a staggering 240%. Profits and revenues have climbed steadily as the West rearms. As a result, the shares look expensive. Even today, the price-to-earnings ratio is 25, well above the average FTSE 100 P/E of 16.5.
Why has this FTSE 100 stock slowed?
Profits certainly aren’t the problem as this list shows:
- 2025 – £2.15bn
- 2024 – £1.96bn
- 2023 – £1.94bn
- 2022 – £1.66bn
- 2021 – £1.91bn
That 2022 dip was primarily down to post-pandemic supply chain disruptions, rising inflation, and energy costs. 2025 was notably strong with record global defence spend driving sales to a record £30.7bn. The order backlog rose yet again to £83.6bn, giving BAE Systems massive earnings visibility. No stock climbs in a smooth upward line. Even one as solid as this.
I think the recent slowdown offers an opportunity for long-term investors who want to increase their exposure to the defence sector. Although I wouldn’t call BAE a bargain today.
So what do the experts say?
I’ve been poring over broker forecasts, and the 13 analysts offering one-year share price forecasts produce a consensus target of 2,306p. If correct, and these are only educated guesses, that would see the shares climb 19% from today’s 1,938p. Throw in the forecast yield of just under 2%, and the total forward return is 21%. Which would turn a £10,000 investment into a pretty handy £12,100. If it happens.
The most optimistic analyst is forecasting a share price of 2,600p in July 2027. That would turn £10k into £13,600, including the dividend. Personally, I’d never presume to second-guess where share prices are growing, but I would say this. If it did hit 2,600p, BAE Systems would be good for it. I’m highly optimistic about the long-term outlook for this stock, but investors must expect the usual ups and downs along the way.
Analysts stock ratings are promising too. Seven out of 13 label it a Strong Buy. Just one suggests selling.
- Strong Buy: 7
- Buy: 0
- Hold: 5
- Sell: 1
- Strong Sell: 0
Naturally, there are risks. Defence manufacturers rely on long-dated government defence contracts, which can be prone to delays, cost saving measures, and policy shifts. European governments may struggle to live up to their defence commitments.
Also, investors have made big profits and may decide to bank them if the outlook dims even slightly. Technical issues with expensive kit can cause all sorts of problems. But in our uncertain world, I still think BAE Systems shares remain well worth considering today.
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Harvey Jones owns shares in BAE Systems.
