Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don’t appear overvalued. Is it now time I added some more to my portfolio?

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BAE Systems (LSE: BA.) shares have easily outperformed the wider FTSE 100 in recent years. But the drivers behind this success — wars, escalating geopolitical relations, and rising defence spending — are far from celebratory.

So far this year, BAE stock is up 21%, bringing the five-year return to around 135%. Nearly all of that gain however, has come since Russia’s shocking invasion of Ukraine in February 2022.

But with Donald Trump back in the White House, pledging to end all ongoing conflicts, I’ve been wondering what to do with my shares in BAE. Sell up, buy more, or keep holding? Here’s my take.

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On track

Yesterday (12 November), the defence giant provided a short but strong trading update. It said it had secured £25bn of orders year to date, with a number of notable contracts won in the second half. These included the supply of various artillery and fighting vehicles.

The company reiterated its full-year guidance for sales and underlying operating profit growth of 12%-14%, with free cash flow exceeding £1.5bn. So everything’s going as planned.

It also said February’s £4.4bn acquisition of US-based Ball Aerospace is progressing well. Renamed Space & Mission Systems (SMS), this division gives BAE participation in the high-growth space sector. It also deepens the firm’s relationship with NASA.

SMS is “delivering group-accretive margins“, the firm said, and it sees annual sales there growing 10% over the medium term. This should mean sales in this unit topping $4bn by 2030, up from around $2bn in 2022.

The Trump wildcard

Will the incoming US president be good or bad for BAE’s share price? I’m a bit torn.

One the one hand, he’s demanded that NATO members boost their defence expenditures, with most already set to reach 2%+ of GDP spending this year. The UK government has committed to increase defence spending to 2.5% of GDP in future. So this should lead to increased demand for the firm’s products.

Meanwhile, Trump has promised expansion of the military. The US is BAE’s biggest market, so this is another positive.

On the other hand, Trump is also unpredictable and has threatened to cut all military aid to Ukraine. He’s also planning significant tariffs on US imports, which could spark wider trade wars. So there could be supply chain risks ahead for large-scale manufacturers like BAE.

My decision

The stock has risen 64% since I first invested in 2022. But I’d hope for further share price gains to justify keeping the stock in my portfolio.

What’s the likelihood of that? Well, analysts see solid growth ahead, driven by BAE’s massive order book. Revenue is expected to rise above £32bn by 2026, up from £23bn in 2023. Dividends are forecast to grow in the 7%-10% range.

Plus the firm said yesterday (12 November) that its portfolio remains “well-aligned with the key priorities” of the US’s defence strategy. And it continues to “see growth opportunities in this market across the medium term“.

Finally, the stock appears attractively valued, especially versus US peers. It’s trading on a forward price-to-earnings ratio of 18.8 compared to 33.5 for GE Aerospace and 20.5 for RTX Corporation.

Weighing things up, I’m not going to buy more shares right now. But that’s only because I might get plenty of better chances in the months ahead, given Trump’s unpredictability.

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Ben McPoland has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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