Biden's election would not dent BAE, Credit Suisse says

The election of Joe Biden as president would probably have little effect on the US defence budget, Credit Suisse said as it maintained its 'outperform' rating on BAE Systems shares and trimmed earnings estimates.

Credit Suisse cut its earnings per share forecast for the arms maker by 10% for 2020, 3% in 2021 and 1% the year after to reflect the impact of Covid-19. The bank pared its target price to 690p from 710p based on the lower earnings expectations.

The bank said the biggest hit to BAE from Covid-19 would be in commercial aerospace and that UK work stoppages would only affect 2020. There will be limited impact in the US, excluding commercial aerospace, Saudi Arabia and Australia.

With Democratic nominee-apparent Biden doing well in polls investors may see his potential election victory as a source of concern for the US defence budget, Credit Suisse analysts Olivier Brochet and Christopher Leonard said. Biden has said he will review the defence budget but has not said he would cut it.

"We think any decision on future budgets will be informed by 1/ the US’ threat assessment and 2/ the positive contribution of defence to economic recovery and job protection post-covid-19," the analysts wrote in a note to clients. "As a result, we do not feel overly concerned on the US defence outlook."

They said BAE appears cheap compared to other aerospace and defence companies and that the 5.3% dividend yield on estimated 2021 earnings is "very attractive in the sector".