This misses the longer-term picture entirely, in my view. This is that NATO is now deep into a multi‑year rearmament programme. It is focused on rebuilding stockpiles and modernising capabilities to deter threats in Eastern Europe and Asia‑Pacific. And estimates are that this process will involve $2.7trn (£2trn) in extra annual spending through to 2035.

BAE Systems sits at the centre of many of these programmes that will run for a decade or more. And that disconnect between short‑term market expectations and long‑term demand is where today’s undervaluation begins.

So, is now the right time for me to buy the shares?

How does the underlying business look?

Short‑term market swings are one thing, but the real test is what is happening under the bonnet. And on that front, BAE’s latest updates give us a clearer picture.

In its 2025 results, sales rose 10% year on year to £30.7bn, with growth across every division. The increase underlined the strength of BAE’s multi‑domain portfolio and the long‑cycle programmes that will drive earnings ahead.

Underlying earnings before interest and tax jumped 12% to £3.3bn, lifting return on sales to 10.8%. This highlighted improving operational efficiency and rising production volumes across key platforms.

Order intake climbed to £36.8bn, powering the order backlog to a record £83.6bn. The rise here illustrated the depth of demand across air, maritime, electronic systems and combat vehicles. Free cash flow stayed steady around £2.2bn and a 10% dividend increase further illustrated the financial momentum supporting future growth.

Overall, analysts forecast the defence giant’s earnings will grow by 12% a year on average over the medium term at minimum.

How’s the valuation look?

That earnings momentum matters, because it provides a clearer lens through which to judge today’s valuation. And in this context, the recent drop in BAE Systems shares adds to the significant underpricing apparent in the stock beforehand, in my view.

A risk here is any delay in defence procurement timetables that could delay earnings realisations. Another is any supply-chain disruption, that could squeeze margins.

Nevertheless, the firm’s forward price-to-earnings ratio of 25.2 is now bottom of its competitor group, which averages 30.4. I use the forward measure (which looks ahead 12 months) as I am interested in where the stock might be heading, not where it has been. Its rivals comprise L3Harris Technologies at 25.5, RTX at 29.9, Rolls-Royce at 34.5, and TransDigm at 31.8. So, BAE Systems looks a major bargain on this basis.

The same applies to its forward price-to-sales ratio of 1.7 — again bottom of its group. Which averages 4. And BAE Systems also looks a steal at its price-to-book ratio of 4.7 compared to the 15.3 average of its rivals.

My investment view

With long‑term demand locked in, strong earnings momentum and a valuation now sitting at the bottom of its peer group, this looks the right moment for me to add to my holding.

And with BAE’s multi‑year growth pipeline clearer than ever, I think the shares also deserve serious consideration from other long‑term investors.

Should you invest £5,000 in BAE Systems right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

Simon Watkins owns shares in BAE Systems and Rolls-Royce.

The post Down 19% to under £20! Is now exactly the right time for me to capitalise on BAE Systems’ bargain-basement share price? appeared first on The Twelfth Magpie.

What’s more, during the past decade they’ve increased at an impressive average annual growth rate of 6.1%:

This great growth record means the dividend yield on BAE shares has averaged 3.7% since 2016. That’s at the upper end of the FTSE 100’s long-term average (3% to 4%).

The question is, what makes the defence company such a reliable passive income grower? And more importantly for investors today, can it keep its proud dividend record going?

Visibility and cash

Like other defence shares, BAE Systems enjoys supreme earnings visibility, giving it the confidence to raise dividends each year. This reflects the critical nature of the products it supplies, and the long-term government contracts it enjoys.

Encouragingly, profit visibility right now is the best it’s ever been — as of December, BAE’s order backlog was a record £83.6bn. The reason why? Defence budgets have boomed in recent years, and in 2025, hit new all-time highs amid rising geopolitical tensions.

Another reason for BAE’s strong dividend growth record is its immense cash flows. This is helping the company fund a huge £1.5bn, three-year share buyback programme as well as paying increasingly tasty dividends. The firm’s expecting to generate £6bn of free cash flow between now and 2028 to fund shareholder returns and invest in the business.

Finally, BAE Systems dividend policy is to maintain a payout ratio of roughly 50% of earnings. The result? A balance between rewarding shareholders and funding business growth which supports steady, long-term dividend growth.

What’s the catch?

Having said all this, dividends are never guaranteed, never mind the payout growth BAE shares have reliably delivered. Rising competition and a loss of top-tier status with major customers could put future payout growth in jeopardy.

And while the business has a great track record of project execution, disastrous tech failures in the field are a constant threat for any defence company. And one that could have a significant impact on future returns for BAE investors.

So should investors still contemplate buying the FTSE stock for dividends? All things considered, my answer is an emphatic ‘yes’. City analysts are certainly confident dividends will keep growing over the medium term, forecasting 2025’s full-year payout of 36.3p per share will rise to:

• 39.6p in 2026
• 44.3p next year
• 49.2p in 2028

How secure are forecast dividends?

BAE’s cash rich balance sheet and strong dividend cover leaves these forecasts looking in good shape. Predicted earnings cover expected payouts between 2 and 2.3 times each year to 2028.

There’s one fly in the ointment for income investors, though. Dividend yields sit at 2% for this year, 2.2% for 2027, and 2.4% the year after. Each is below the 10-year average of 3.7%. Still, the prospect of reliable and rapidly growing dividends long into the future makes BAE Systems shares worth serious attention.

Should you invest £5,000 in BAE Systems right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

Royston Wild does not hold any positions in the companies mentioned.

The post How have BAE Systems shares become a dividend powerhouse? 5 reasons why! appeared first on The Twelfth Magpie.

Investors who spotted the opportunity and committed £19,469 in early December — just shy of the annual ISA allowance — would now be sitting on an investment worth £24,550. That’s a handsome return on paper of more than £5,000 in half a year, before dividends.

For a leading European defence stock that many traditionally think of as a slow and steady compounder, those gains warrant a closer look. So what’s actually going on?

Crunching the numbers

Six months ago the shares were trading at around 1,609p. As I write ahead of Monday’s market open, the price stands at 2,029p — an increase of 26.1%. Based on a £19,469 starting investment, the maths looks like this:

That capital gain of 26.1% in six months puts the stock comfortably ahead of the broader FTSE 100 index. But what’s driving such a strong performance from a business that’s been around for decades, and is there still more to come?

From defence stalwart to growth story

With a market cap of £61bn and roughly 111,000 employees worldwide, the defence contracting giant is one of the most significant businesses in the FTSE 100.

I don’t currently own any of its shares, but a market-leading position in European defence and an increasingly favourable global spending backdrop are making me take a much closer look.

The past six months have seen an acceleration of government defence spending commitments and flaring tensions in the Middle East.

That has translated into commercial success for the company. Chief Executive Charles Woodburn highlighted this in the company’s 2025 annual results:

“With a record order backlog and continuing investment in our business to enhance agility, efficiency and capacity, we’re confident in our ability to keep delivering growth over the coming years.”

The numbers support this, with a record £83.6bn order backlog and 2026 sales growth guidance of 7%–9%.

The stock has a modest 1.8% dividend yield versus more income-focused names in the Footsie. Investors have been willing to pay a premium, however, as the stock’s price-to-earnings (P/E) ratio has climbed to 29.8.

Is the valuation still justified?

I keep asking myself the same question on valuation. At 2,029p today, the premium versus the broader market is significant and investors need to ask whether the market has already priced in the positive outlook.

An investment isn’t without risk. A P/E ratio of nearly 30 leaves little room for disappointment such as missed earnings guidance or a slowdown in orders. 

Government spending decisions are fundamental to order book growth, which could come under pressure, and supply chain risks are always lurking in the background.

Time to consider buying?

The company is a clear leader in the defence sector and has enjoyed significant recent share price growth as the defence sector has stolen the limelight.

The key question for me is whether the current valuation represents the right entry point. The next earnings release is scheduled for 30 July, and I’ll be watching closely to see what management has to say on orders and margins before making any decisions.

Should you invest £5,000 in BAE Systems right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

Ken Hall does not hold any positions in the companies mentioned.

The post £19,469 invested in BAE Systems shares 6 months ago is now worth… appeared first on The Twelfth Magpie.

But two others particularly catch my eye. And one of them surprises me — but I’ll leave that for last.

Defence boost

BAE Systems (LSE: BA.) has soared more than 280% over the past five years — though that’s still way behind Rolls-Royce’s 1,100%.

Yet even after a rise like that, brokers expect even more. They have an average price target on the stock of 2,322p — around 11% above where were are today.

And looking at analyst models, my Twelfth Magpie colleague Mark Hartley recently concluded they had it around 25% below fair value.

The company’s latest trading update highlighted…

• Strong operational and financial performance so far in 2026.
• Full-year guidance maintained.
• Increased defence spending across all our key markets.
• Well positioned for growth over the medium term.

The main potential threats I see concern valuation and timing. We’re looking at a forecast price-to-earnings (P/E) ratio of 25 right now. And many will see that as at least fully valued.

And the defence business has been cyclical over the long term. Is it really wise to consider investing at a time when the future will hopefully be more peaceful?

Still, the changing world order means there might actually be years of defence growth to come, I think. So I’d say BAE’s worth looking into — even if it’s not for me.

Best till last?

And then we come to RELX (LSE: REL), which seems to have the City experts all excited. A full 14 out of the 15 I can find with recommendations urge us to Buy. And even the lone party pooper is only sitting on a Hold recommendation — so hardly a gloom merchant.

The 3,618p average target is about 50% higher than the share price at the time of writing, with the stock lagging the FTSE 100 over the past year.

So why all the optimism? It looks like it’s that AI thing…

The continued evolution of artificial intelligence is enabling us to add more value to our customers, as we embed additional functionality in our products, and to develop and launch products at a faster pace, while continuing to manage cost growth below revenue growth.

CEO Erik Engstrom, FY 2025 results

April’s AGM trading update continued along the same lines: “Strong underlying revenue growth continues to be driven across segments by our deeply embedded, AI-enabled analytics and decision tools.“

Bull vs Bear

I confess I’m pulled in two directions here. I certainly can’t ignore the surge in AI technology. But I’m just not sure which pioneers will pass the test of time — the rising tide lifting all boats thing.

Against that, RELX has a forward P/E of only 19 — and that could be cheap if it’s a long-term AI winner. Oh, and the company’s raised its dividend for 15 consecutive years — albeit with a modest yield under 3%.

Should investors be considering RELX as a way to earn dividend cash from AI? I am.

Should you invest £5,000 in BAE Systems right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

Alan Oscroft does not hold any positions in the companies mentioned.

The post 2 hot FTSE 100 shares brokers are tipping for June appeared first on The Twelfth Magpie.

Today, I’m picking out three favourites to consider buying in June and holding for as long as possible.

Top performer

Shares in mining giant Rio Tinto (LSE: RIO) have been on fire in 2026, partly thanks to soaring metal prices. Anyone snapping up the stock in January will have seen their stake grow by around 30%. This is before we’ve even factored in a 192p dividend paid in April.

At the time of writing, the main index has delivered a little less than 5%.

But it’s the long-term potential I like here. The shift to cleaner energy sources means that metals such as copper, lithium, and aluminium should be in huge demand going forward. Rio is a major player in all three.

Sure, this company has no control over the price of what it digs up, and, yes, commodity markets are highly dependent on the state of the global economy (and China in particular). If history is any guide, the average investor should expect at least a few challenging periods ahead.

Even so, I think there’s an argument for saying that today’s price may look like a bargain in a few years.

Can this FTSE 100 winner keep soaring?

Another FTSE 100 stock that I think could do very well is BAE Systems (LSE: BA.). That might seem like an odd pick. After all, isn’t investing all about ‘buying low and selling high’? Ideally, yes. However, just because a company’s share price has shot up in recent times — and BAE’s most definitely has — doesn’t mean this won’t continue.

Existing investors have clearly ‘benefited’ from the Ukraine-Russia and US-Iran conflicts. A merciful end to these wars could see some sell up. The shares already trade at a frothy price-to-earnings (P/E) ratio of 24.

But this might be a mistake. Governments around Europe are increasing their defence spending on things like submarines and protection against cyber attacks. Contracts for this kind of work last for years, giving great earnings visibility for BAE.

The fact that some/a lot of this is already baked into the price means that gains could be more muted going forward. But the current backdrop suggests returns might still outpace the index.

Monster dividends

Since spreading money around different sorts of businesses is a way of mitigating (but not eliminating) risk, I’m also flagging financial services specialist Legal & General (LSE: LGEN).

Now, in sharp contrast to the other stocks mentioned here, L&G has been something of a disappointment. The share price is actually lower now than five years ago!

Still, those already invested have received a lovely dividend stream. Today, the forecast yield stands at a monster 8.2% for 2026. That’s easily the highest among the biggest companies in the UK stock market.

There’s no guarantee those cash distributions will remain at this level. However, I reckon this company’s exposure to major demographic trends, such as an ageing population needing to secure their financial futures, should allow it to begin moving up the gears in the years ahead.

Should you invest £5,000 in BAE Systems right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

Paul Summers has no position in any of the shares mentioned.

The post 3 FTSE 100 shares to consider buying in June and holding for a decade appeared first on The Twelfth Magpie.

I’d love to inform you all that world peace has just broken out. Sadly, that’s not the case at all. The war in Iran drags on, with no conclusion in sight. China has sent Donald Trump a stark warning over Taiwan. Casualties mount in Ukraine.

Are recent dips a buying opportunity?

The West needs to rearm, the only argument is where we find the money. Today, all three boast huge order books. Babcock’s is around £10bn, BAE Systems is roughly £84bn, while the figure for Rolls-Royce’s Defence arm is £7.3bn. These numbers give them multi-year earnings visibility, backed by government spending, which is much less cyclical than the consumer version.

On the other hand, orders don’t guarantee profits. They’ve still got to deliver the kit, while keeping costs in check, managing supply chains, and solving the inevitable technical issues that arise.

Babcock’s latest market update (13 May) showed full-year revenue rising 10% to £5.3bn, with underlying operating profit up an impressive 19% to £433m. But there was a larger-than-expected £140m charge on its Type 31 frigate programme.

On 7 May, BAE Systems predicted an increase in underlying operating profits between 9% and 11% in 2026, from 2025’s £30.7bn. But free cash flow is forecast to dip from last year’s £2.2bn to £1.3bn.

Rolls-Royce’s defence division only makes up 25% of the groups overall revenues, so the engineering group can’t be directly compared to Babcock and BAE. All three divisions are going great guns but investors surely feel that Rolls could struggle to maintain its stunning performance.

Are these FTSE 100 stocks still expensive?

I think the main reason for the recent dip is that their shares became too pricey, after such a strong run. Just a few months ago, Babcock and BAE Systems were trading at price-to-earnings ratios of around 30, while the Rolls-Royce P/E was heading towards a dizzying 65. So what do their trailing P/Es look like today?

• Babcock – 19.6
• BAE – 25.3
• Rolls-Royce – 39.4

While they’re notably cheaper than they were, it’s hard to call any of the shares a screaming bargain buy. However, I still think there’s a buying opportunity here for investors who want to increase their long-term exposure to the defence sector. In my view, all three have earned their place in a balanced portfolio of FTSE 100 shares.

Since I already have solid positions in BAE Systems and Rolls-Royce, I won’t buy more. But I’m seriously tempted by Babcock. This is a share I’ll be keeping a close eye on. I think it has the potential to outperform the stock market and deliver even higher returns in the longer return.

Should you invest £5,000 in Rolls-Royce Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?

Harvey Jones owns shares in BAE Systems plc and Rolls-Royce Holdings plc. 

The post Are Babcock, BAE Systems and Rolls-Royce shares suddenly screaming buys? appeared first on The Twelfth Magpie.

The news has rattled investors but the business still looks solid, with earnings up 6.3% a year over the past five years — ahead of many UK blue-chips.

Analyst models now suggest earnings could grow by around 12.13% annually from here. If that proves even roughly right, is the latest pullback a chance to buy into a long-term defence heavyweight at 25% below fair value?

A bullish outlook

Under the bonnet, BAE’s still moving in the right direction. In the latest results, it boasted the following achievements:

• Revenue up 7.69% year on year, from £26.31bn to £28.34bn.
• Earnings up 8.33%, from 69p to 75p per share.
• Management’s guided for 7%-9% sales growth.
• A record order backlog and strong demand across air, maritime and electronics.

If the top line keeps growing while margins hold, today’s earnings forecasts may yet prove conservative.

Naturally, the ongoing conflict in Ukraine is a key driver of demand. After years of underinvestment, NATO has boosted spending with European defence budgets largely increasing across the board.

A recent summit saw an agreement towards spending up to 3.5% of GDP on core defence and a further 1.5% on resilience projects by 2035.

As BAE chief executive Charles Woodburn put it: “The trend is definitely upward” for defence spending.

But while that supports long-term demand for BAE, there’s also a key challenge.

Negative sentiment

As war rages on, there’s an understandable increase in negative sentiment around defence spending. We’re seeing increasing pressure from activists to reduce spending on arms exports and push for peaceful de-escalation.

That would be an ideal outcome for all involved, even if it means short losses. But is it enough to prompt governments to trim defence budgets sooner than expected — even after recent NATO pledges?

If so, BAE’s at risk of another bout of volatile price swings.

The valuation’s also questionable. While the stock’s estimated to be 25% below fair value using a discounted cash flow model, its forward price-to-earnings (P/E) ratio sits around 22.14. That’s not exactly ‘cheap’ for a mature FTSE 100 name.

So is it really the value opportunity it appears to be — and do the potential benefits outweigh the risks?

My verdict?

From a purely financial point of view, BAE still looks in good shape. In that sense, it’s still worth considering for long‑term investors who support defence spending despite the ethical quagmire.

Structural drivers like higher NATO budgets, record order books and next‑generation programmes in naval and space systems point to decent earnings visibility over the next decade.

But the shares aren’t a fire sale, and any reversal in geopolitical tensions or public support for defence spending could hit sentiment hard. For value‑minded investors, this pullback looks more like a potentially attractive entry point than a screaming bargain.

The key question’s simple: are you personally comfortable owning a defence stock that could stay politically controversial, even if the cash flows keep marching higher?

Mark Hartley has positions in BAE Systems.

The post 25% below fair value, is the BAE share price a screaming buy for bargain hunters? appeared first on The Twelfth Magpie.

Question marks have remained for a long time about its pricey valuation. Now the premium on the FTSE 100 defence firm’s shares might be a step too far for budding investors. Maybe a price-to-earnings ratio of above 30 is simply too high for a British manufacturer? While I can’t speak for every investor everywhere, I can offer my own take on the subject.

Any worries?

The long and short of it is that no, I’m not worried at all. I have happily seen my stake in BAE Systems rise in recent years, and I’m not planning to sell at the first sign of trouble.

What do I make of the recent fall? It’s a fairly natural byproduct of an ongoing conflict and a capricious world leader. Defence stocks will always rise and fall based on such geopolitical events. And the ups and downs are intensified when the bloke in the White House changes his mind more often than I change my socks.

It’s also a reason many may wish to steer clear too. Defense stocks fall under the category of ‘sin stocks’ that are in sectors that some people might be uncomfortable with.

As for the Q3 update, the pullback came after investors were disappointed by the lack of upgrades to forward guidance. While that can be a short-term issue that justifies a sizeable drop in share price, it’s not something that will massively affect the stock long term.

Worth the price?

A would-be investor to BAE Systems is still staring at a mighty high valuation. When a firm trades at 30 times earnings, that often suggests a lot of growth is baked into the share price. Is that the case here?

I think so. The increase in government spending is starting to trickle in and the company has been slowly building its order backlog in recent years. I would say we’re still early in the game for NATO countries chucking more money into military budgets.

And BAE Systems is set to benefit because of the wide range of valuable products and services. Take the recent multi-million dollar contract to service the USS Iwo Jima at a shipyard in Norfolk, Virginia. The US is a notable big spender and is the firm’s biggest customer to boot.

While I could not blame anyone searching for cheaper-looking stocks at a time when many are trading at cut-price valuations, I think BAE Systems is still worth considering.

The post Are the wheels falling off for BAE Systems shares? appeared first on The Twelfth Magpie.

Here I want to talk about three specifically, and what makes them such formidable passive income providers. The names in question are BAE Systems (LSE:BA.), Standard Life (LSE:SDLF), and Seven Trent (LSE:SVT).

Let’s take a look.

Dividend quality

Each of these firms enjoys strengths that make them perfect dividend powerhouses. With BAE Systems, these factors include:

• A focus on defence, where long-term demand remains stable.
• Tier 1 supplier status with huge defence spenders (including the US and UK).
• Huge barriers to entry, which limits competitive threats.
• A diverse product range, protecting profits from slowdown in one or two areas.
• Growing geopolitical uncertainty, which is driving global defence budgets.

Standard Life has its own distinct set of advantages, such as:

• Capital-light operations and a focus on acquiring ‘closed’ life insurance and pension policies.
• Predicable cash generation from in-force policies and investment returns.
• Asset portfolios that are tightly hedged against interest rate moves.
• Robust capital reserves (its Solvency II ratio today is 176%)
• Strong growth in the retirement and savings markets.

Great records

Severn Trent, meanwhile, benefits from:

• Operating in an ultra-defensive industry (water supply).
• A monopoly in the Midlands region of the UK, eliminating competitive dangers.
• Multi-year regulatory periods that provide long-term earnings visibility.
• A strong record of operational efficiency, limiting costs.
• A growing asset base that leads to increased dividends.

So how have these qualities translated into dividends down the years? Let’s take a look.

Over the past decade, dividend yields have beaten — or been at the upper end of — the FTSE 100 average of 3%-4%. Standard Life’s yield has delivered a yield roughly double that level.

These FTSE stocks have also navigated major shocks to keep growing their dividends. During the Covid pandemic, for instance, they continued raising payouts, a period when roughly half of Footsie companies experienced some disruption.

Can they keep delivering?

But here’s the thing. Past dividend performance isn’t always a reliable guide to future. With BAE Systems, earnings could suffer if defence-related supply chain issues worsen, impacting dividend growth.

Rising competition in pensions and annuities might hit Standard Life’s future payouts. And as for Severn Trent? The company’s profits could take a hit if interest rates rise and borrowing costs shoot up.

However, no share is without risk. And on balance, I fully expect these FTSE 100 stocks to keep offering excellent dividend yields and payout growth. Their resilient business models and strong cash generation make them excellent income shares to consider.

The post How do these FTSE 100 stocks keep paying brilliant dividends? appeared first on The Twelfth Magpie.

The firm has continued to post strong results, characterised by surging orders, earnings and cash flow. It is embedded in some of the world’s most strategically important defence programmes.

Yet despite all this, the shares still look materially undervalued when compared with the company’s international peer group. And this disconnect has only widened after a recent 14% dip in price.

So, is now the time for me to add to my holding?

How do the valuations stack up?

Despite its price gains over the last few years, BAE’s price-to-sales (P/S) ratio of just 2.2 is bottom of its peer group.

This comprises RTX at 2.7, L3Harris Technologies at 2.8, Rolls-Royce at 4.4, and TransDigm at 7.4. The average P/S of these firms is 4.3, so BAE is very cheap on this basis.

It also looks a bargain on its 5.4 price-to-book ratio compared to its competitors’ average of 13.8. And it still looks cheap at a price-to-earnings ratio of 30.4 against a peer average of 31.6.

For a company of BAE’s scale, quality and strategic importance, that valuation gap looks difficult to justify. And for long‑term investors, that disconnect could represent a rare opportunity in a sector where genuine bargains are hard to find.

Is the core business strong?

Gains in any company’s share price are driven over the long run by sustained earnings (‘profits’) growth.

A risk to BAE is any major failure in one of its products that could prove costly to remedy and could damage its reputation. Another would be supply‑chain issues that might disrupt production schedules and push up costs.

Nevertheless, in the firm’s 2025 results, management said it expects 2026 underlying operating profit growth of 9%–11%.

And analysts forecast 12.1% average annual earnings growth to the end of 2028, at minimum.

What are the earnings growth drivers?

Those 2025 results showed underlying earnings before interest and taxes jumping 12% year on year to £3.3bn, highlighting improved operational efficiency and disciplined contract execution.

Both should continue to support strong margin expansion.

Meanwhile, sales rose 10% to £30.7bn, underlining strong momentum behind its long‑dated contract programmes. These include such programmes as the Eurofighter Typhoon, the Dreadnought‑class submarine, and space‑based missile‑tracking satellites for the US Space Force.

Underpinning all this was order intake of £36.8bn pushing the backlog to a record £83.6bn.

My investment view

NATO ex-US members have now pledged to lift combined defence budgets to 5% of GDP by 2035, up from around 2% last year. It is an increase worth around $423bn (£314bn) a year.

Meanwhile, the US defence budget reached approximately $919bn last year. There are proposals to raise this to around $1.5trn a year by 2027.

BAE is already integrated into the heart of key defence programmes relating to land, sea, air and space. And these mark a long-term structural shift toward boosting deterrence to deter aggression, rather than a temporary fix to short-term conflicts.

Consequently, I will be buying more of the stock very soon. And I have my eye on shares in other sectors that are also undervalued with strong earnings profiles.

The post Down 14% to just under £21, is now exactly the right time for me to buy more BAE Systems shares? appeared first on The Twelfth Magpie.