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With most stocks taking a tumble in recent weeks, the BAE Systems (LSE:BA.) share price seems to be an exception. The British aerospace and defence business has seen its valuation surge by over 35% since 2025 kicked off. And looking at the latest analyst forecasts, this upward trajectory could continue over the next 12 months.
Bullish analyst opinions
Just over half the institutional analysts following this enterprise currently have a Buy or Outperform recommendation on BAE shares. And it’s not exactly difficult to see why.
Amid growing geopolitical tensions worldwide, the company posted a record order backlog valued at £77.8bn – an £8bn increase versus 2023. This was predominantly driven by renewed demand for its Hunter Class frigates in Australia, CV90 combat vehicles in Denmark and Sweden, along with 25 and 24 new Typhoon aircraft orders for the Spanish and Italian Air Forces respectively.
Combined, this surge in orders translated into a 14% boost in revenue and underlying operating profits. Free cash flow did underperform by comparison, coming in essentially flat year-on-year at £2.5bn. However, that’s still significantly larger than the £1.5bn management was aiming for courtesy of higher-than-expected customer advanced payments paired with “strong operational cash conversion”.
What’s more, demand’s expected to continue growing as Europe begins to ramp up its defence spending. So with all that in mind, it’s not entirely surprising that one analyst expected the BAE Systems share price to rise to as high as 2,450p over the next 12 months. That’s a 58% potential increase from today’s valuation, suggesting that a £5,000 initial investment could grow to £7,903 by this time next year.
Taking a step back
The prospect of making just over £2,900 over the next year is understandably exciting. However, it’s important to remember that forecasts aren’t set in stone.
Furthermore, this outlook’s the most optimistic among analysts. And when taking the average of all current projections, the BAE share price is expected to reach just 1,540p. That’s roughly in line with where shares are trading right now. This implies that all the expected growth from higher EU spending and order growth has already been baked into the stock price.
Another risk that seems to be going ignored is the potential for a cut to the US defence budget. Suppose Europe is more capable of defending itself. In that case, America may be able to achieve some cost savings within the military to fund proposed tax cuts as well as pay down the national debt. And with almost half of BAE’s revenue stream coming from across the pond, growth could stall as defence spending redistributes from one country to another.
Nevertheless, BAE’s substantial order book should keep it busy for many years to come. And even at current levels, the valuation on a forward price-to-earnings basis is a fairly reasonable 21, behind the European industry average of 25.8. As such, while investors aren’t getting a massive bargain, BAE shares could merit further research by those seeking exposure to the aerospace and defence industry.
