Wide-moat BAE Systems BA. reported another strong year with the backlog reaching a record £77.8 billion and sales and EBIT increasing by 14% year on year, in line with expectations.
Key Morningstar Metrics for BAE Systems
- Fair Value Estimate: £15.50
- Morningstar Rating: ★★★★
- Economic Moat: Wide
- Morningstar Uncertainty Rating: Medium
BAE Systems Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct. Latest price as of 15:36 GMT. Data as of Feb. 19, 2025.
What We Thought of BAE Systems' Earnings
Electronic systems' sales rose 35% to £7.2 billion, driven by the acquisition of Ball’s aerospace business (renamed space and mission systems) and 9% organic growth from precision strike, sensing, and commercial aviation. Margins fell from 16.1% to 14.9% due to BAE’s space and mission systems' lower initial margins and reduced pension recoveries, but cost synergies are materializing with new revenue opportunities in defense and space.
Platforms and services' sales grew 15%, led by strong armored multipurpose vehicle and Bradley demand in the US, and CV90 and Archer artillery in Europe. European rearmament and replenishment programs, especially after the war in Ukraine began, boosted the backlog. EBIT improved to 10.2% from 9.0%, driven by full-rate AMPV production and higher margins in Hägglunds and Bofors.
Maritime sales rose 12% as the unit executed long-term naval programs with steady progress on the UK’s Dreadnought submarines. The SSN-AUKUS submarine contract strengthens BAE’s nuclear submarine position. Margins held steady at 7.7%.
Air division sales rose 7%, fueled by missile programs under MBDA, Typhoon jet production, and unmanned aerial systems expansion. Returns on sales were stable at 11.8% as higher volumes offset program investments. Its focus is securing long-term next-generation combat air contracts and strengthening MBDA’s missile defense position.
Cybersecurity and intelligence sales grew 6% to GBP 2.4 billion, but EBIT remained flat with returns on sales decreasing slightly to 8.3% due to constrained US defense budgets. Cost controls helped maintain profitability. BAE expanded its cybersecurity and intelligence footprint with a $1.2 billion US Air Force ISC contract extension, a $251 million US Navy AEGIS contract, and $122 million Trident II weapons support deal.
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