At £12.95, the BAE Systems (LSE:BA.) share price has soared by almost 120% since Russia invaded Ukraine three years ago. It’s charging higher again after a disappointing end to 2024, driven by renewed fears over the geopolitical landscape.
A strong set of full-year financials on Thursday (19 February) have helped fuel this fresh move higher.
If broker forecasts are correct, BAE’s shares will continue to surge over the next 12 months. But how realistic are current projections, and should investors consider buying the FTSE 100 share for their portfolios?
Double-digit gains predicted
There is a broad range of analyst predictions for BAE Systems’ shares over the coming year. One particularly bearish forecaster believes the company could fall as much as 5% between now and February 2026, to £12.25 per share.
At the opposite end of the scale, the most bullish broker thinks BAE will rise as high as £16.85 per share. That’s up a hefty 30% from current levels.
However, the average price target among 17 brokers with ratings on the stock is £14.77 per share. That marks a 14% premium to today’s price.
Good value
That suggests further healthy upside from current levels. When combined with potential dividends, investors could reap more FTSE 100-beating returns with BAE Systems over the next 12 months.
That said, it’s important to note that BAE’s valuation is higher today than at any point in the past decade. This could in theory limit the chance of additional price gains.
At 17.7 times, the current forward price-to-earnings (P/E) ratio sits above the 10-year average of roughly 15 times.
Yet investors should also remember that BAE Systems shares still trade at a hefty discount to many of its overseas peers.
France’s Safran and Germany’s Rheinmetall, for instance, trade on prospective P/E ratios of 33.4 times and 32 times respectively. Italy’s Leonardo trades on a multiple of 21.8 times. And in the States, RTX carries a P/E of 20.5 times.
Stunning progress
Given its sector discount and the favourable trading landscape, I believe BAE Systems’ share price could continue rising as City brokers predict.
Last week’s strong trading update again underlined the company’s excellent momentum. Revenue leapt 14% in 2024, to £28.3bn, while its order backlog rose by £4bn to record highs of £77.8bn.
Pre-tax profit rose 6% from 2023 levels, to £2.6bn.
BAE’s top-tier supplier status and diverse range of capabilities position it well to meet growing demand. Following on from last year’s strong performance, it’s predicted annual sales growth of 7% to 9% in 2025, too.
Rapid rearmament in the West has supercharged defence sector sales since early 2022. And following US threats to reduce its military protection, growth could accelerate as European nations spend to compensate for Uncle Sam’s reduced role.
Supply chain problems and project disruptions could impact BAE’s ability to grow earnings. But the company’s strong record of execution helps soothe any fears I have. I think it remains a top growth stock to consider.
