Citi stays at 'buy' on BAE Systems, says 2023 guidance 'somewhat conservative'

In a research note sent to clients, Citi said that they believed BAE's 2023 guidance for 3-5% sales growth, a 4-6% jump in earnings before interest and taxes and a 5-7% increase in earnings per share was "only the start".

In fact, in their judgement, the bottom end of those ranges was "somewhat conservative" with the mid-to-high end more likely.

They also noted that current foreign exchange rates implied a 3% tailwind which would boost growth by another 150 basis points.

On top of that, the rate of growth in the company's organic sales was seen topping 5% in 2024 because typically increases in defence budgets translated into sales growth 1-2 years afterwards.

"We have therefore increased our near-term forecasts slightly, but the cumulative impact of greater growth rates increases our longer-term forecasts more significantly, boosting our [Net Present Value]-derived target price by 10% to 1,146p."