Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for BAE Systems
- Fair Value Estimate: £22.50
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
UK-EU Deal a Turning Point for BAE
We raise our fair value estimate for BAE Systems BA. from £15.50 to £22.50 to reflect a structurally stronger growth outlook, underpinned by maintained global rearmament and deepening integration with European defense priorities. The UK’s reentry into EU-funded programs via the EUR 150 billion EDIS framework marks a turning point in regional alignment. While the fund remains below what we consider sufficient to address Europe’s defense capability gap, it lays a critical foundation for broader industrial coordination and larger-scale future instruments.
We revise our air division CAGR from 5% to 7%, supported by improving visibility on fleet renewal cycles, a strengthening order outlook in Middle East and Europe, upside from MBDA, and updated expectation from the capital market day. Germany and Spain are progressing new Typhoon orders, while Italy has indicated interest in both expansion and midlife upgrades. GCAP is expected to become a pan-European industrial anchor, with development ramping up after 2025.
European Missile Market Boosts BAE
Moreover, through its stake in MBDA, BAE is well positioned to capitalize on the European missile market, which is projected to outpace the broader defense sector as Europe accelerates investments in advanced missiles to enhance strategic autonomy amid supply concerns from the US.
We raise our electronic systems growth forecast to a 9.0% CAGR, reflecting accelerating demand for tactical communications, C4ISR, and electronic warfare upgrades across both Europe and the US, driven by NATO modernization, JADC2 initiatives, UAV and next-generation platform integration. The new space & mission systems unit, leveraging the Ball Aerospace acquisition, is now expected to grow at an 11% CAGR, underpinned by classified payloads and positioning in IRIS² and Copernicus.
We also raise platform systems growth from 7% to 8%, reflecting new export momentum in Bofors’ Archer artillery and early-stage tracked vehicle replacements across Europe.
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