MENU

This News Item Doesn’t Put Me Off BAE Systems Plc

As all Fools know, a key skill in business is adaptability and the ability to welcome change.

Indeed, business changes so frequently that it never stands still, with management changes and board changes being a part of everyday life for all companies across the globe.

So, when I found out that Linda Hudson, head of BAE Systems Inc., is leaving the company, I just saw it as part of everyday business life. Certainly, she has done a very impressive job and the role is a very important one for BAE (LSE: BA) (NASDAQOTH: BAESY.US) because it is the head of the autonomous US division. However, nobody is irreplaceable.

Of course, it is the first big management change at the company for the new chairman, Sir Richard Carr, to deal with. It is also rumoured that Linda Hudson is viewed internally as BAE’s most powerful executive; once being looked upon as the next CEO of the company.

Furthermore, it is a key role within the company, with the US division having its own all-American board due to US national security regulations. It also accounts for just over 40% of group revenue and continues to be the US government’s biggest foreign-owned defence contractor.

However, the importance of the role and the uncertainty that Linda Hudson’s departure creates does not put me off investing in BAE.

Despite it being a key role, BAE has the time and the resources to find a suitable replacement. As a major player in the defence industry, it can undoubtedly attract top-quality talent and, furthermore, the opportunity to run a major autonomous division with its own board will appeal to a high calibre of applicant.

Although the company struggled somewhat to find a new chairman recently, it should not encounter similar problems in the US. The talent pool is wider and, with the worst of the credit crunch seemingly behind us, it may turn out that US military spending is currently at a low ebb.

In addition, I feel that shares in BAE are simply too cheap at the moment and that there is scope for an upwards rerating. Shares currently trade on a price-to-earnings (P/E) ratio of 11.3, which compares very favourably to the FTSE 100 on 15 and to the industrials industry group on 23.

Meanwhile, shares yield an above-average and inflation-beating 4.4%, while earnings per share are forecast to increase by as much as 10% this year.

Of course, you may be looking outside of the defence sector for an addition to your portfolio. If you are, The Motley Fool has come up with a shortlist of its best ideas called 5 Shares You Can Retire On.

It’s completely free and without obligation to take a look at the shortlist and I’d recommend you do so. Click here to view those 5 shares.

> Peter owns shares in BAE Systems.