The strong demand for BAE Systems‘ (BAESY) ships and planes, along with its high exposure to major trends in Europe and the U.S., leave BAESY well-positioned to outperform the stock market in the next 12 months.
Further, the company reported outstanding 2025 results, and its valuation is very attractive, given its excellent growth outlook.
BAE’s Ship and Plane Businesses Are Thriving
In the third quarter of last year, Norway “ordered…. at least five…Type 26 (ships from BAE Systems) in a contract valued at roughly 10 billion (British pounds) to the UK economy,” The Register reported. The large order came on top of an additional five ships that the company was working on for the British Navy at the time. BAE is seeking to eventually build a total of eight ships for the UK.
And the firm intends to provide “state-of-the-art nuclear-powered submarines” for Australia, CEO Charles Woodburn announced on the company’s 2025 earnings call, held on February 18. Finally, the company provides submarine parts, along with “ongoing ship repair and modernization” to the U.S. Navy. Suggesting that the firm’s revenue from the U.S. Navy is poised to grow meaningfully, BAE has tripled the capacity of its shipyard in Jacksonville, the CEO noted.
And in another move that will greatly boost its shipbuilding capacity, the company launched a new factory in Scotland in 2025. In light of all of these points, it’s unsurprising that the revenue of its maritime unit jumped 11% in 2025 to 6.8 billion British pounds, while the business’s orders came in at an impressive five billion British pounds.
Turning to aircraft, BAE received a large order from Turkey for 20 of its Typhoon planes in a deal expected to generate 4.6 billion British pounds for BAE. Additionally, in 2025 the company’s aircraft business produced 4.2 billion British pounds of revenue from MBDA, its joint venture with Airbus (EADSY) and Leonardo. Cumulatively, the air business recorded an impressive 15 billion British pounds of orders in 2025.
Highly Leveraged to Major U.S. and European Trends
Indicating that BAE will be able to benefit meaningfully from Golden Dome, the Trump administration’s $175 billion missile-defense initiative, the company in June obtained a $1.2 billion deal from the Space Force to furnish “missile tracking satellite capabilities.” Further, with Secretary Pete Hegseth enthusiastically backing a huge increase in the country’s drone fleet and looking eager to integrate more autonomous systems, BAE is developing drones that can “configure their own software” based on individual missions. Similarly, as the defense secretary seeks to develop new counter-drone capabilities, BAE has created technology that it says has drastically lowered the cost of such products.
And given the fact that BAE is based in the UK and has a 37.5% stake in MBDA, BAE is well-positioned to benefit from favorable trends in Europe. Specifically, with European countries reacting to threats from Russia, the majority of NATO nations are looking to “significantly (raise) the amount they spend on defense,” Woodburn reported. MBDA’s annual orders have jumped from around four billion euros annually since 2021 to 13 billion euros now, while the UK “is committed to the largest sustained increase in defense spending since the end of the Cold War,” Woodburn reported.
Outstanding 2025 Financial Results
In 2025, the company’s sales climbed 10% to a record 30.7 billion British pounds, while its operating earnings increased 9% to 2.93 billion British pounds. Further, its backlog rose 5.8 billion British pounds to 83.6 billion British pounds. During 2026, BAE expects its revenue to advance another 7%-9%, and it predicts that it will generate free cash flow from 2026 to 2028 of over 6 billion British pounds.
Valuation and the Bottom Line on BAESY Stock
BAE is changing hands at a forward price-earnings ratio of 23.8 times. Given its strong growth and high profits, the company’s valuation is rather low. Since BAE is very large and consequently unlikely to grow extremely rapidly, it’s best-suited for value investors and conservative investors.
This article is intended to be informational only; it is not financial advice.
