Despite a double upgrade from Bank of America, BAE Systems (LON: BA.) shares have experienced a pullback in recent trading sessions.
The UK defence giant, which saw its rating move from “Underperform” to “Buy” at BofA, with a substantially increased price target to 2,280p, from 1,515p a share, has seen its stock decline.
On Friday, shares fell by 2.6%, followed by a 0.4% drop on Monday and another 2.6% slide on Tuesday. As of Wednesday morning, the stock is down a further 0.6%.
Despite the decline, BofA recently provided its thesis for its now bullish outlook, which cited a “fundamentally changed” European defence landscape and an entry into a “decade of hard power over soft power.”
BofA's analysis highlighted that Europe is poised to reinvest in its defence industrial base, leading to “material growth over the next few years.”
They specifically pointed to companies with high intellectual property in missiles, air, and autonomy precision strike, as having “longer-duration growth trajectories” that could support premium valuations.
BofA believes BAE’s portfolio and geographic exposure give it strong leverage to these themes.
Despite this optimistic assessment from BofA, the market has reacted with selling pressure. However, BAE Systems' shares are still up more than 62% this year and over 19% in the last three months.
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