Goldman Sachs initiates coverage on BAE Systems stock with Buy rating

Investing.com - Goldman Sachs initiated coverage on BAE Systems Plc (LON:BA) (OTC:BAESY) with a Buy rating and a price target of GBP22.70, citing strong operational momentum across all sectors. The aerospace and defense giant has demonstrated remarkable performance, with an impressive 88.75% year-to-date return according to InvestingPro data.

The investment bank highlighted BAE Systems’ recent H1 guidance raise for EBIT to +9-11%, up from the previous +8-10%, demonstrating robust performance throughout the company’s divisions. As a prominent player in the Aerospace & Defense industry, BAE Systems has maintained dividend payments for 34 consecutive years, with a current dividend yield of 2.03%.

Goldman Sachs forecasts a greater than 9% EBIT CAGR for BAE Systems between 2025-2030, putting their estimates approximately 2%, 3%, and 4% ahead of Visible Alpha Consensus Data for fiscal years 2026, 2027, and 2028, respectively.

The firm believes BAE Systems is well-positioned to expand its European sales and challenges the notion that the company’s US business will impede growth, pointing to high growth rates in Defence Electronics.

Goldman Sachs’ GBP22.70 price target implies approximately 13% upside potential, compared to an average of 6% for their coverage universe, with the stock valued at 21 times 12-month forward EV/EBIT.

In other recent news, BAE Systems has been awarded a $48 million contract modification for the production of the MK 41 Vertical Launching System canisters and ancillary equipment. This contract involves purchases for the United States, Australia, and Japan under the Foreign Military Sales program. Additionally, BAE Systems has secured a $40.8 million contract modification to produce countermeasures for the U.S. Navy, which includes 200 Dual Band Decoy countermeasures and associated assemblies. Meanwhile, Kepler Cheuvreux downgraded BAE Systems from Hold to Reduce, citing expectations of soft first-half results, although the firm raised its price target to GBP15.10.

In collaboration with the Air Force Research Laboratory, BAE Systems will continue developing AI technology to improve battlefield medical care through the Battlefield Assisted Trauma Distributed Operations Kit. Furthermore, the United Kingdom and France have agreed to order more Storm Shadow cruise missiles and are working on a replacement system as part of their defense agreement. These developments highlight BAE Systems’ ongoing involvement in defense contracts and technological advancements.

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