BAE Systems valuation attractive, says Barclays as it upgrades

Barclays upgraded aerospace and defence company BAE Systems to 'equalweight' from 'underweight' and lifted the price target to 550p from 500p as it pointed to an attractive valuation and lower volatility ahead.

The bank noted that BAE shares trade at a 20% discount to US peers and also highlighted the material order book growth forecast for 2018, improving FY20 cash profile and a 5% dividend yield offering support as a defensive income investment.

Barclays said it was increasing its FY19/20 earnings per share estimates by 4% and 11%, respectively, on more bullish growth and margin expectations in Electronic Systems and P&S US.

It said execution discipline on the ramp-up of franchise programmes such as combat vehicles, F35 jets, ‘classified’ projects and UK Maritime should drive EPS growth.

"The valuation does not reflect the improving earnings and returns profile. Near-term however, we see continued execution risk and sentiment overhang from UK/Saudi government relations," Barclays said.

At 1555 GMT, the shares were up 1.7% to 505.08p.