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

Market Movers

Why is the FTSE 100 at all-time highs?

Jon Smith flags up two reasons for the jump in the FTSE 100 over the past week, also pointing out…

Read more »

A couple celebrating moving in to a new home
Investing Articles

The Taylor Wimpey share price rises on housing market ‘stability’. Time to consider buying?

The 2024 Taylor Wimpey share price hasn't been in great form, so far. But Paul Summers remains cautiously optimistic for…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

The FTSE 100 reaches an all-time high! Here are 2 of its best stocks to consider buying

With the FTSE 100 soaring in 2024, this Fool thinks investors should consider buying these two stocks. Here he breaks…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Here’s why I see cheap UK shares soaring in the years ahead

UK shares look undervalued and this Fool plans to take advantage of it. Here he details one stock he's keen…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Dividend Shares

Is Legal & General the best stock to buy in the FTSE right now?

UK investors have been piling into Legal & General in recent weeks. But are there better FTSE shares to buy…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With no savings at 40, I’d buy and hold these 2 FTSE 250 stocks to retirement

Jon Smith outlines two FTSE 250 stocks that he believes offer long-term value for an investors that's looking to build…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £7,864 every year in passive income

Investing a relatively small amount in high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is Aviva’s share price a bargain now it’s trading well below £5?

Aviva’s share price has slumped to well below £5, but even before that it looked a bargain to me, with…

Read more »