Shares in BAE Systems (LON:BA) have gained ground in today’s session as UBS hiked its rating on the UK defence contractor. The analysts argue that the FTSE 100 group’s current valuation is undemanding following the pension agreement and confirmation of the Qatar order.
As of 14:38 GMT, BAE Systems’ share price had added 0.59 percent to 576.00p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.14 percent higher at 7,742.31 points. BAE Systems’ shares have lost more than five percent of their value over the past year, as compared with more than a six-percent gain in the Footsie.
UBS turns bullish on group
UBS lifted its rating on BAE Systems to ‘buy’ today, and hiked its price target on the shares from 655p to 670p.
“We think BAE’s end market exposure is amongst the most attractive in the sector; the company is exposed to growing defence budgets in the US (36 percent of sales) and Saudi Arabia (21 percent). In the US, the NDAA has authorised $634 billion base defence spending for 2018 (+15 percent YoY), while the Saudi government has approved a 10-percent increase in the 2018 budget to $56 billion,” the analysts explained, as quoted by Proactive Investors, adding that in this context, they viewed “BAE’s valuation as undemanding”.
The broker notes that while it expects a UK defence spending review in late 2018 to result in capability cuts, it also believes that the risk to the blue-chip defence contractor is limited, since BAE’s UK activities are ‘longer cycle’.
Other analysts on BAE
The 18 analysts offering 12-month price targets for BAE Systems for the Financial Times have a median target of 672.50p, with a high estimate of 795.00p and a low estimate of 460.00p. As of January 6, the consensus forecast amongst 20 polled investment analysts covering the blue-chip group has it that the company will outperform the market.