Down 8%, new orders make BAE Systems’ share price look like a bargain

The BAE Systems share price looks like a bargain to me, given big new orders added to an already huge order book and its strong dividends.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Defence - soldiers jumping out of a perfectly good plane

Image: Public domain

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

BAE Systems (LSE: BA) share price has dropped over 8% since 25 April. This is despite big new orders being placed during that time, adding to an already bulging order book.

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 202225 May 2023Zoom ▾Jan '22Mar '22May '22Jul '22Sep '22Nov '22Jan '23Mar '23May '23Jan '22Jan '22May '22May '22Sep '22Sep '22Jan '23Jan '23May '23May '23www.fool.co.uk

On Wednesday, a $2.2bn contract was announced for the Czech Republic to buy 246 CV90 vehicles from the BAE Systems Hägglunds unit. On 18 May, it was awarded a major three-year contract by the US Army.

And on 10 May, Mitsubishi Heavy Industries said it expects record defence orders this year as Japan expands its military. The company is a partner with BAE Systems on a new joint advanced fighter for Japan.

Should you invest £1,000 in Ig Group Holdings right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 Ig Group Holdings made the list?

See the 6 stocks

The world isn’t getting any safer

This highlights the rising geopolitical tensions in Asia Pacific as concerns continue to build over China’s intentions towards Taiwan. In March, the company won a key role in the nuclear submarines to be provided to Australia.

In Europe as well, tensions appear as high as they were when Russia invaded Ukraine last year. Indeed, Romania announced on 11 April that it wants to buy new F-35 Lightning II fighters, which BAE Systems co-produces.  

In total, it has an order book worth £48.9bn and a backlog worth £58.9bn, according to its 2022 results. This is up £14.9bn from the £44bn of backlog as at the end of 2021.

Excellent shareholder rewards

Elsewhere in the results, the key numbers looked impressive to me, and I am bullish for the future. Revenue increased 8.9% year on year, exceeding consensus analyst estimates by 1.3%. Earnings per share (EPS) also beat analyst estimates, by 4.7%.

On 4 May, it stuck to previous guidance for earnings to rise again this year. Previous guidance was for a 3%-5% increase in sales and a 5%-7% increase in underlying EPS for the year ahead. The projections for dividends in 2023 and 2024 are 28.9p and 31.1p per share, respectively.

As a result of the stronger-than-expected numbers in 2022, the company bought back £788m of its shares. It also increased the annual dividend by 8%, from 25.1p to 27p per share.

Positive as well for me is that government defence departments rarely cancel contracts. They also rarely quibble about rising costs linked to inflation and applied in existing contracts.

The risk in these shares is that many environmental, social, and corporate governance (ESG) portfolios shun defence stocks. And an easing of global tensions — which we all hope for — could also dent the share price.

However, I feel the geopolitical backdrop and BAE Systems’ very positive financials outweigh these risks. Based on new orders and the order backlog, together with the key metric estimates above, I expect the shares to recoup all recent losses. I also expect them to extend gains beyond those levels, albeit dependent on future market conditions. As such, I am happy to retain my holding in the company, and if I did not have this then I would buy them right now.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

£10,000 invested in the FTSE 100 at the start of 2025 is now worth…

The FTSE 100 has bounced back from April’s tariff sell-off. Roland Head crunches the numbers and highlights a stock to…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

Up 20% with a 9% yield! This stock remains my top passive income earner

When it comes to earning passive income through dividend investing, this major FTSE 100 insurer is the undeniable winner in…

Read more »

4 Teslas in a parking lot at a charger station
Investing Articles

Tesla vs Ferrari: which stock is leading the race in 2025?

This writer digs into the Q1 numbers to see whether his decision to choose Ferrari over Tesla stock has been…

Read more »

Businessman with tablet, waiting at the train station platform
Investing Articles

Here’s the growth forecasts for Next shares through to 2028!

Next's shares have risen in price again after another forecast-raising trading statement. Is the FTSE 100 company a white hot…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Up 145%, this investment trust has a P/E ratio of 10. Is it still a bargain?

The long-term track record of this investment trust has been excellent. Our writer thinks it could still be a bargain…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

These 3 dividend shares are on fire but they’re still dirt-cheap and pay piles of income!

Harvey Jones is hugely impressed by 3 FTSE 100 dividend shares that have managed to deliver on two key fronts,…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

9% yield! Is this one of the best dividend stocks to consider buying right now?

With signs the worst for it might be over, dividend investors should add B&M European Value to their lists of…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Down 26% in 3 months! What’s going on with the Alphabet share price?

Stock market investors sold off Alphabet (NASDAQ:GOOG) shares heavily yesterday. Is this a worry or a timely buying opportunity to…

Read more »