BAE Systems share price could suffer a harsh reversal, chart shows

By:
on Jun 11, 2024
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  • BAE Systems' stock price has soared to a record high recently.
  • The shares have formed a rising wedge chart pattern on the daily chart.
  • This is a sign that the stock could suffer a harsh reversal soon.

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BAE Systems (LON: BA) share price has done well and is sitting at its highest level on record. It has soared to a high of 1,416p, 62% above its lowest point in 2023, meaning that it has outperformed most companies in the FTSE 100 index. 

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Rising global risks

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BAE Systems stock price has done well, joining other companies of the military-industrial complex like RTX, General Dynamics, and Lockheed Martin.

This growth happened as countries in North America and Europe continued boosting their defense spending. In the US, Senator Roger Wicker has made the case of boosting defense spending to 5% of the total GDP.

Tensions have continued rising in the past few years. The war in Ukraine is continuing while the Middle East is getting highly volatile. There is also a risk that China will invade Taiwan in the coming years.

BAE Systems revenue growth has continued. It made over £23 billion in 2023, a 9% increase from the £21.2 billion it made a year earlier. Its operating profit jumped to over £2.57 billion while net cash flow rose to £3.76 billion.

Most importantly, the company’s orders have continued rising in the past few years. It ended the last financial year with almost £70 billion in backlog, a £10.9 billion increase from the previous year. 

As a result, BAE Systems has continued to reward its shareholders through dividends and share buybacks. It paid a 30p dividend in the last financial year, a 11% increase, marking the 20th straight year of growth. It also repurchased shares worth over £519 million in 2023. 

The company has also made other moves to boost its structure. It has acquired Ball Aerospace in a $5.6 billion deal. This buyout gave BAE Systems more business in the space, defense technology, and tactical missiles industry. 

I expect that BAE Systems will continue doing well this year as demand continues rising. The key challenge that the company is facing is that raw material costs have continued rising. This includes important metals like steel and aluminum, which are essential in the defense industry.

BAE Systems share price forecast

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BAE Systems

BAE chart by TradingView

The daily chart reveals that the BA stock price has been in a strong bull run in the past few months and is now sitting at its all-time high. It has constantly remained above the 50-day and 100-day moving averages, which is a positive sign.

However, the stock has also formed a rising wedge pattern that is shown in red. In price action analysis, this is one of the most bearish signs, especially when it is nearing its confluence level. 

Therefore, while BAE shares have more upside, there is a likelihood that they will suffer a harsh reversal in the next few months. If this happens, these shares could retreat to the key support level at 1,350p.

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