After sleeping though much of the 2010s, BAE Systems’ (LSE:BA.) shares have roared into life since Russia invaded Ukraine in early 2022.
Someone who invested £10,000 in the defence giant a decade ago would have seen the value of their shares rise to £34,428 today. BAE Systems’ share price now stands at £17.48 per share versus 508p in mid-April 2015, a whopping 244% increase.
That’s a pretty great return, in my book. And it looks even more impressive when factoring in dividends. On this basis, someone who bought in 10 years ago would have £39,152 to show for an initial £10k investment.
That represents a total shareholder return of 291.5%, and an average annual return of 14.6%. That’s far ahead of the FTSE 100 average of 6.4%.
What can we expect BAE shares to do next?
BAE shares to drop?
The first port of call is to check out what City analysts are predicting for BAE Systems’ share price. As the chart below shows, the outlook for the next 12 months isn’t exactly promising. That’s if current forecasts are to be believed.
As with many UK shares, price forecasts for the weapons maker vary massively. On the plus side, one forecaster reckons BAE shares will reach £24.50 over the next year. Yet another believes they will topple all the way back to around half this level, to £12.86.
The consensus meanwhile, is for the FTSE firm to drop around 4% in value during the coming year, to around £16.73. That’s based on a sample of 14 broker ratings.
US uncertainty
One reason for this could be the possibility of reduced orders from the US. This is a critical market for BAE Systems (around 44% of total sales are generated from Stateside customers).
The threat here is multi-pronged. Department of Defense spending could fall as President Trump reduces American involvement on global battlefields. Spending could also fall as the Department of Government Efficiency (DOGE) seeks out savings.
Furthermore, US defence spending could be prioritised towards Stateside contractors going forwards as part of Trump’s ‘America First’ strategy.
A cheap defence stock
However, falling US spending also creates potential opportunities for the FTSE firm. Namely, European arms budgets are tipped to rocket as other countries (and particularly NATO members) step in to fill America’s depleted geopolitical role.
BAE Systems has a good chance to capture substantial business in this landscape. It already has strong relationships with non-US NATO members like the UK, Canada, Germany and France. That extends to other allies such as Australia and Sweden. This is thanks to its exceptional record of project execution, its broad-based expertise (across land, sea, air and in cyberspace), and its enormous scale.
While it’s not without risk, I think BAE’s share price could have further to rise. That’s in spite of those bearish City forecasts. And given its low price-to-earnings (P/E) ratio — this is 24.7 times versus 34 times for the broader European defence industry — I think it’s a top stock to consider.
