Bernstein ups BAE Systems, cites attractive international positioning

It said the recent pullback in BAE’s share price has widened the valuation gap compared to US peers considerably, without any corresponding deterioration of fundamentals.

“Our rating is based primarily on improved performance expectations in international defence growth and an increased margin of safety in the current share price.”

Bernstein said it has an incrementally more positive view towards BAE's outlook for growth in international markets, buoyed by recent news of Typhoon sales to Kuwait, and the potential for further orders to come from Saudi Arabia and Oman.

It said BAE has a balanced exposure across defence markets in the US, UK and, increasingly, Saudi Arabia.

“Budget pressures in the first two have incrementally improved and the outlook is supportive for stabilizing growth in sales and earnings over the forecast period.”

The brokerage added that there is upside potential for contract wins for aircraft and ground combat vehicles, though timing is difficult to estimate.

At 1430 BST, BAE Systems shares were up 1% at 444.43p.