3 Great Reasons Why BAE Systems plc Is Set To Take Off

Royston Wild looks at the major share price drivers for BAE Systems plc (LON: BA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I believe BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) is an attractive investment option for stock market investors.

Explosive sales potential in foreign climes

BAE Systems continues to make significant headway in new territories, a crucial point given that constrained budgets in the West are likely to weigh on the top line moving forwards. The business saw orders from non-US and UK customers hit £4.8bn in January-June, a £500m rise from the same period in 2012.

In particular, BAE Systems is a major supplier to Saudi Arabia, and during the period inked a £600m weapons contract under the Saudi British Defence Co-operation Programme, as well as a £1.8bn deal for follow-on support for the Salam Typhoon aircraft, due to run until 2017.

The company is also banging the drum over its sales potential exciting new geographies — indeed, the firm highlighted ‘significant opportunities to secure future Typhoon export contracts‘ to the United Arab Emirates and Malaysia in August’s half-year report, for example.

Impact of reduced US spend overstated?

As I have explained, the impact of reduced expenditure from the US continues to weigh on the firm’s revenues outlook. And although prospects from this region remain meagre for the short to medium term, many believe that the company is now over the hump in this regard.

Broker Investec reckons that, excluding commercial sales and FMS exports, total US government spending will account for around 36% of BAE Systems’ sales in 2013. Given these figures, in the event of a theoretical 10% sequester cut transpiring in the States, this would result in a 3.5% dip in total revenues. Although a greater profits dip would materialise under this scenario, the effect would still remain manageable for the firm.

An enviable cash generator

BAE Systems has an extremely robust balance sheet and saw its cash pile explode over the past 12 months — indeed, free cash flow more than tripled in 2012 to just over £3bn.

Current cash strength leaves the defence giant in an extremely strong position on the merger and acquisition front, a trail which BAE Systems has been extremely active on in recent times. And the weighty cash position also leaves investors confident that its progressive dividend policy is in good shape to keep on rolling even in the event of earnings pressure. Payouts of 20.28p and 20.75p are predicted by City analysts for 2013 and 2014, up from 19.5p last year.

The inside track to hot stocks growth

So whether or not you already hold shares in BAE Systems, and are looking to significantly boost your investment returns elsewhere, check out this special Fool report which outlines the steps you might wish to take in order to become a market millionaire.

Our “Ten Steps To Making A Million In The Market” report highlights how fast-growth small-caps and beaten-down bargains are all fertile candidates to produce ten-fold returns. Click here to enjoy this exclusive ‘wealth report’ — it’s 100% free and comes with no obligation.

> Royston does not own shares in BAE Systems.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »