Few UK stocks have epitomised investors’ apparent belief in a changing world order better than BAE Systems (LON:BA.).
For many years, this FTSE 100 defence group was a modestly valued, slow-growing but reliable dividend stalwart. That all changed when Russia invaded Ukraine in 2022.
The stock surged upwards again in February 2025, after US Vice President JD Vance gave a fiery speech to European leaders that raised questions about whether the US would remain a reliable ally in European affairs.
Even an investor who bought after the start of the Ukraine war could now be sitting on a double bagger, with further gains from dividends.
However, BAE’s valuation is elevated by historical standards. Meanwhile, the group’s heavy exposure to the US market – which contributed 48% of revenue last year – may be less of a clear-cut advantage than it once was.
I’ve been taking a fresh look at this leading global defence group. Is it time for investors to consider taking some profits on BAE? Or are we just at the start of a structural shift in growth and profitability for this FTSE heavyweight?
Summary
Pros:
Record order backlog, potentially nine years’ including foreseeable pipeline;
Rising defence spending in Europe, clear commitment by UK government;
30-year plus record of dividend growth, solid fundamentals, valuation is not outrageous given recent growth rate.
Cons
US defence spending outlook is unclear; North America represented nearly half group sales in 2024;
Risk that investment in major expansion could lead to a period of subdued returns
Valuation is well above historic norms.
Profile
About the stock
BAE Systems provides advanced, technology-led defense, aerospace, and security solutions. It’s listed in the Industrials sector, within the Aerospace & Defense industry group.
The shares are listed on London’s Main Market, where the company is a member of the FTSE 100 with a market cap of £46bn and a recent share price of 1,500p.
The StockRanks reflect BAE’s elevated share price and solid financial performance, with a High Flyer styling reflecting strong quality and momentum metrics, but a low value score:
