Key Takeaways:
- BAE Systems is expanding its defense capabilities through technology investments, production scaling, and positioning across NATO’s priority areas.
- BAE stock could potentially reach £22.66 by December 2029, based on valuation assumptions.
- This represents a total return of 22% from today’s price of £18.62, with an annualized return of 5% over the next 4.2 years.
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BAE Systems (BA), a UK-based global defense and aerospace company, is capitalizing on elevated defense spending across NATO and allied nations through order backlog growth to £75 billion, increased production rates for combat aircraft and vehicles, and technology leadership in drones, missiles, and next-generation systems.
BAE serves government customers in the UK, US, Europe, the Middle East, and Asia-Pacific through its comprehensive defense portfolio, which includes combat aircraft, naval vessels, submarines, combat vehicles, electronic warfare systems, and emerging technologies like unmanned systems.
Core offerings include Eurofighter Typhoon combat aircraft, nuclear submarines through SSN-AUKUS, CV90 infantry fighting vehicles, precision-guided munitions, and advanced drone systems developed through its FalconWorks division and recent acquisitions.
The defense contractor delivered first-half 2025 sales growth of double digits, strong EBIT growth, and order intake of £13 billion, with upgraded full-year guidance reflecting demand strength across all geographic segments and product lines.
BAE Systems demonstrates exceptional execution across long-term program management under the leadership of CEO Charles Woodburn and the senior management team.
BAE secured a combined order backlog and incumbent program positions approaching £260 billion, representing over 8 times annual sales; achieved margin expansion in Platforms & Services reaching double digits; and advanced production-scaling investments exceeding £160 million at Swedish facilities. BAE stock has navigated multiple defense spending cycles since its formation.
BAE stock has surged more than 300% over the last five years. Here’s why the large-cap stock could provide strong returns through 2029 as it capitalizes on NATO defense budget increases while scaling production across aircraft, vehicles, and weapons systems.
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What the Model Says for BAE Systems Stock
We analyzed the upside potential of BAE Systems stock using valuation assumptions based on its defense platform capabilities and market expansion opportunities driven by increased NATO spending and production scaling initiatives.
Analysts recognize an opportunity ahead for BAE stock given its established positions on multi-decade programs worth £260 billion, accelerating defense budgets reaching 3.5% of GDP in the UK and similar increases globally, and proven ability to deliver margin expansion while scaling production.
BAE’s diversified geographic and product portfolio provides multiple growth vectors, while the £75 billion order backlog creates exceptional revenue visibility, supporting confidence in sustained growth beyond 2030.
Based on estimates of 7% annual revenue growth, 8% net income margins, and a normalized P/E valuation multiple of 20x, the model projects BAE stock could rise from £18.62 to £22.66.
That would be a 14% total return, or a 6% annualized return over the next 2.2 years.
Our Valuation Assumptions
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for BAE stock:
1. Revenue Growth: 7%
BAE Systems delivered a strong first half 2025 performance with double-digit sales and EBIT growth, reflecting tight alignment with defense priorities across all key markets and successful execution on major programs.
Growth drivers include UK defense spending increasing to 3.5% of GDP for core defense by 2035, with additional national security spending, the US defense budget of $961 billion representing a 13% increase, European rearmament driving Typhoon production, and Asia-Pacific expansion through Japan’s defense spending doubling by 2027, and Australian submarine programs.
We used a 7% forecast, reflecting BAE’s ability to capture accelerating defense budgets while managing production constraints across complex weapons systems, aircraft, and vehicles that require time to scale manufacturing capacity.
2. Operating margins: 11%
In the first half of 2025, BAE’s operating margins remained stable around 10.6%, demonstrating pricing discipline and operational excellence across a diversified portfolio of defense programs.
BAE targets continued margin improvement through the Platforms & Services segment, achieving double-digit margins as full-rate production benefits from automation investments, MBDA margin expansion of approximately 100 basis points, bringing margins on par with Air sector levels, and production efficiency gains from robotics and facility investments exceeding £250 million in recent years.
3. Exit P/E Multiple: 20x
BAE Systems stock trades at premium multiples reflecting its position as Europe’s largest defense company with deep positions across NATO priority areas and multi-decade program visibility.
We maintain reasonable valuation levels given BAE’s order backlog, providing over 8 times annual sales in visibility, diversified exposure to all major defense markets experiencing budget increases, and strategic positions on programs extending through 2050, including next-generation combat aircraft and nuclear submarines.
Long-term competitive advantages from incumbent program positions, classified technology expertise, and established government relationships across five continents should support premium valuations as defense spending increases, driving sustained growth through the 2030s.
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What Happens If Things Go Better or Worse?
Different scenarios for BAE stock through 2030 show varied outcomes based on defense budget execution and production scaling success: (these are estimates, not guaranteed returns):
- Low Case: Slower production ramp and budget constraints lead to minimal returns
- Mid Case: Steady execution on backlog and margin expansion could generate 5% annual returns
- High Case: Accelerated production scaling and new program wins drive 9% annual returns
BAE Systems trades at a premium valuation and does not look too attractive given the low and mid-case estimates.
The upside scenario for BAE stock could deliver strong performance if the company successfully doubles Typhoon production rates while scaling combat vehicle output and achieving target margin expansion across all segments.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
