Rolls-Royce Holdings (LSE: RR.) has wiped the floor with the BAE Systems (LSE: BA.) share price in the past two years, up 500% compared to just 55%.
But it’s easy to forget just how far the Rolls price fell before all this happened.
Over five years, the BAE share price is up 125%. But after its huge slump in the 2020 stock market crash, Rolls shares are up only 110% overall.
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Value comparison
I’ve been taking a close look at the valuations of the two, and at what the forecasters have lined up for them.
On some fundamental measures, BAE looks like the better one to consider even after that superior five-year performance.
The examination teaches me a key lesson too. When we compare these today, we’re looking at two very different companies than five years ago.
So we need to forget what we knew. We should put the massive two-year growth from Rolls down as a past fact and nothing more (and certainly not a guide to future performance). And see how the two stack up now.
Head to head
The following table shows how analysts see earnings per share (EPS), price-to-earnings (P/E) ratios, and dividends going for the two companies for the next three years.
| Company | BAE Systems | Rolls-Royce |
| EPS growth 2024 | +8.3% | -38.3% |
| P/E 2024 | 19.8 | 30.5 |
| Dividend yield 2024 | 2.5% | 1.0% |
| Dividend cover 2024 | 2.0x | 3.4x |
| EPS growth 2025 | +12.4% | +12.9% |
| P/E 2025 | 17.6 | 26.9 |
| Dividend yield 2025 | 2.7% | 1.2% |
| Dividend cover 2025 | 2.1x | 3.1x |
| EPS growth 2026 | +11.3% | +15.0% |
| P/E 2026 | 15.9 | 23.4 |
| Dividend yield 2026 | 3.0% | 1.5% |
| Dividend cover 2026 | 2.1x | 2.8x |
How they stack up
Looking at those numbers, we can see Rolls-Royce is set to record an earnings fall this year. It should get back to growth next year. But even with that, by 2026 we still wouldn’t see EPS back to the 2023 level.
BAE, meanwhile, should easily beat Rolls in total three-year earnings growth by 2026.
BAE is well ahead in the dividend stakes too. Rolls is only just getting back into that game though, with cover to spare by earnings. A few years down the line, I could see them both neck and neck.
Where BAE does well is in those P/E ratings. The stock looks better value on that score, with a fair bit more potential growth apparently built into the Rolls-Royce share price.
Watch that debt
But here’s where Rolls-Royce excels, in a way I wouldn’t have thought possible just a couple of years ago.
Net debt is forecast to soar to £6.3bn at BAE this year, and only a bit less at £6.0bn by 2026. Rolls-Royce, by contrast, looks set to swing back to net cash. Debt was down to just £0.8bn by the halfway stage this year.
Would I buy?
This year, the two are enjoying very positive sentiment which could keep them flying. But I’ll hold off on both for now, and hope for better buying opportunities ahead.
