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Investing.com - Citi has raised its price target on BAE Systems (LON:BAES) Plc (LON:BA) (OTC:BAESY) to GBP21.45 from GBP14.75 while maintaining a Buy rating on the defense contractor’s stock.
The significant price target increase reflects Citi’s extension of its high single-digit growth forecast to ten years, up from the previous five-year outlook. The firm projects sales growth of 6-7% for BAE Systems through the end of the decade.
Citi anticipates potential acceleration in growth from approximately 2029 as UK defense spending increases from 2.5% to 3.5% of GDP by 2035. This spending boost is expected to drive a 9% sales and profit CAGR from FY2030 to FY2035, compared to 7.4% CAGR from FY2025 to FY2031.
The new target price is based on a discounted cash flow valuation that assumes 7.4% profit growth for 5 years to 2030, 100% cash conversion, a 20% tax rate, and 9% WACC.
BAE Systems, a major defense contractor, continues to benefit from increased global defense spending amid heightened geopolitical tensions.
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