The last five years have seen BAE Systems (LSE: BA.) string together a solid performance. During that time, its shares are up 125.4%.
That puts the FTSE 100 to shame. It’s up just 10.4% during the same period. If I had invested in BAE Systems instead of buying an index tracker, I’d be a very happy investor.
During that spell, it has posted record turnover while profits have also steadily risen. We’ve faced some gruelling economic conditions over the past couple of years. So that’s mightily impressive.
But what could the next five years have in store for the stock? And is it time for investors to consider buying some shares?
Latest results
To answer that, I’m going to start by looking at its latest results. That should give me a guide on how the business is faring right now.
For the first half of the year, BAE Systems posted a pretty strong performance. Sales grew 13% to £13.4bn. Underlying earnings before interest and tax (EBIT) grew by the same amount to just below £1.4bn. Underlying earnings per share (EPS) were up 7%.
However, free cash flow fell £851m to £219m. Even so, CEO Charles Woodburn said the company is “well positioned for sustained growth in the coming years”. That’s why the business now expects full-year sales to rise by 12-14%.
Strong prospects
While its order intake fell slightly for the first six months of the year, there’s plenty to suggest that demand will rise in the years ahead as Woodburn alluded to.
Increased defence spending has helped drive its share price higher over the last couple of years and it’s expected to keep climbing.
NATO members have committed to increasing their defence spending to at least 2% of gross domestic product (GDP). BAE Systems will be a major beneficiary of this new wave of spending.
What’s more, the UK has said it will spend 2.5% on its GDP on defence spending. While that was first implemented by former Prime Minister Rishi Sunak, Keir Starmer has previously said he will uphold this.
Then there are geopolitical tensions. The war in Ukraine continues. There’s also the Israel-Hamas conflict.
The risks
That said, should the wars end soon, as everyone hopes, then spending from key nations could decline.
What’s more, while Starmer has previously promised the 2.5% target, there will now be a Strategic Defence Review. Some believe it will reveal that spending will come in less than 2.5%.
Predictions
I also want to look at what the experts think the stock could do. It’s worth noting that analysts’ forecasts can be wrong. However, I still like to use them as a guide.
For the 15 analysts offering a 12-month target price, they’ve an average target of £14.54. That represents a 14.6% premium to its current price. The highest target’s £16. The lowest is £13.30.
One to consider
All in all, I think BAE Systems is in a strong position to deliver solid returns in the next five years. However, I’m not expecting it to put up a similar performance to the previous five years. Nevertheless, I think we could see share price growth.
I reckon it’s a stock that investors should consider taking a closer look at. That’s what I’ll be doing.
The post After rising 125% in 5 years, what’s next for BAE Systems shares? appeared first on The Motley Fool UK.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
