BAE Systems: Bull or Bear? Analysts Split on Defence Stock

BAE Systems shares fell 1.8% on Thursday despite Morgan Stanley naming the UK defence contractor its new top pick in European defence, as a downgrade from Erste Group offset the bullish sentiment.

Morgan Stanley analyst Ross Law lowered his price target on BAE to 2,420 pence from 2,662 pence while maintaining an Overweight rating, arguing the stock’s recent de-rating offers an attractive entry point.

Law said BAE is well positioned to benefit from expected increases in US and Middle East defence budgets, flagging “material” earnings upside from those tailwinds.

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However, Erste Group moved in the opposite direction, downgrading BAE to Hold from Buy. Analyst Hans Engel acknowledged that demand from NATO countries remains strong and that BAE expects revenue growth of approximately 8% year-over-year in 2026, but said growth in operating profit and earnings per share this year and next is “significantly lower than that of competitors in the defence sector.”

The split verdict left the stock under pressure, with Thursday’s decline extending a difficult recent stretch for the shares.

BAE has fallen 14.4% over the past three months, though it remains up 4.6% year to date, reflecting a broader pullback in European defence stocks after a sharp run-up earlier in the year.

Overall, TradingView data shows seven of 13 analysts remain bullish on the stock, with five assigning it a Hold rating and one a Sell rating.