Key Morningstar Metrics for BAE Systems
- : GBX 2,600Fair Value Estimate
- : ★★★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of BAE Systems’ Earnings
BAE Systems’ BA. first-half sales rose 9% at constant currency to £15.8 billion, underlying EBIT rose 11% to £1.7 billion, and orders reached £16.4 billion. Management raised its 2026 growth outlook for sales to 8%-10%, EBIT to 10%-12%, and free cash flow to over £2 billion.
Why it matters: The results show BAE moving from order accumulation to industrial conversion. Capacity added in Swedish vehicles, US space and munitions, and UK combat air is lifting volume, while greater electronics, missile, and space content and program risk retirement allow EBIT to outgrow sales.
- Europe generated 30% sales growth and represents 33% of backlog but only 13% of sales. Hägglunds and Bofors grew nearly 30%, showing that previous factory expansion is converting rearmament demand into deliveries rather than leaving it trapped in backlog.
- Air grew through higher Typhoon production, Turkey, and GCAP, while risk retirement lifted margins. Space grew 29%, and US munitions agreements will fund two- to four-fold production increases, adding higher-margin growth beyond current delivery ramps.
Between the lines: Maritime sales rose 4%, but EBIT fell 7%, an expected mix effect rather than weaker execution. Strategically important Type 26, Hunter, and Dreadnought programs are still in early ramp and trade at prudent margins; profitability should improve as production matures.
The bottom line: We maintain our GBX 2,600/USD 140 fair value estimate. BAE’s value lies in program continuity: F-35 and Typhoon maintain air earnings until GCAP scales; MBDA, space, and missile defense increase higher-margin content; and Type 26, Dreadnought, and AUKUS add decades of naval production and support as builds mature.
- BAE is exposed to both layers of modern warfare: long-cycle aircraft, submarines, and combat vehicles anchor demand, while APKWS, counterdrone, space, and autonomous systems add mission content around them.
