BAE Systems: Analyst Cautious Despite Bullish Defence Sector View

RBC Capital initiated coverage of BAE Systems (LON: BA.) with a Sector Perform rating and a 2,200p price target on Tuesday, striking a cautious note on the stock even as it turned positive on the broader European defence sector.

Analyst Colin Moody said BAE benefits from wider defence tailwinds but is likely to under-grow its European peers, forecasting a 10% EBITA compound annual growth rate to 2030 versus a peer average of 16%.

He attributed the gap to geographic and product mix, noting BAE’s high U.S. and U.K. exposure, at 70% of sales, growing more slowly than NATO Europe, which makes up 12% of sales but is expanding at 16% a year.

On product mix, Moody pointed to “a highly diversified portfolio, but with notable slower growing fixed-wing platform exposure,” which accounts for 37% of sales. Framed against RBC’s positive sector view, he said a valuation of 26 times 2026 earnings, broadly in line with the peer average of 27 times, looks fair, supporting the Sector Perform rating.

The cautious call on BAE comes as RBC started coverage on six European defence names, arguing the rearmament cycle “has only just begun.”

The firm expects European rearmament to drive defence spending growth of 16% annually to 2030, with further high-single-digit growth well into the next decade. With the sector down 13% from its March peak, RBC sees an attractive entry point for the group at large.

BAE shares fell 0.6% on Tuesday to 2,230p. The stock is up 30.1% year to date and 29.8% over the past 12 months.