Next week’s another bumper one for UK shares, with several major companies announcing results and trading updates. Two of the biggest on the UK stock market include BAE Systems (LSE: BA.) and Rolls-Royce (LSE: RR.).
Let’s take a look at what to expect and whether now’s a good time to consider these stocks.
BAE Systems
In July, BAE Systems reported strong first half results with an 11% sales increase and a 13% rise in earnings before interest and tax (EBIT).
At the same time, it upgraded its full-year sales guidance to an increase of 8%-10%, and underlying EBIT to 9%-11%. The guidance reflected confidence after the strong H1 performance — but will the final results live up to the hype?
One concern that’s been swirling around BAE in recent weeks is its valuation. The price-to-earnings (P/E) ratio currently stands at around 25, a level it’s only previously been at when growing much faster.
Yet overall sentiment remains generally positive, with BAE’s strong operational performance and solid order book supporting a thesis of continued growth.
Revenue and underlying EBIT growth’s expected to be in line with (or slightly above) existing guidance, driven by new contract wins and expanding defence spending. Consensus forecasts predict an earnings growth rate of around 11.3% through 2027.
But this forecast could be derailed by a cut in government defence spending or any loss of key contracts. There’s no immediate signs to suggest this will happen but it remains an ever-present risk for defence contractors.
Rolls-Royce
After dipping 6.5% in the first half of October, Rolls-Royce has once again defied bearish sentiment and continued its upward trajectory.
In its Q3 trading update next Thursday (13 November), analysts expect further good news. Revenue’s expected to reach around £19.5bn for FY2025 and £21.5bn in 2026, supported by growth in civil aerospace, defence and power systems.
Of course, there’s always a risk that an unexpected environmental disaster could ground air traffic. And, like BAE, defence spending cuts could hurt profits. But barring that, the company seems on track to continue going from strength to strength.
In late October, Berenberg updated its Rolls’ rating from Sell to Hold, raising its price target significantly from 240p to 1,080p. It cited “more favourable fleet dynamics” and highlighted the group’s notable improvement in 2025.
However, it pointed out a risk to profits from engine retirements that are above 20 years old. Forecasting an 8.8% compound annual growth in engine retirements over the coming 10 years, it said the situation “represents a profitability headwind“.
An optimistic outlook
Both Rolls-Royce and BAE Systems face similar sector-specific risks related to the aerospace and defence sector. However, with analyst forecasts looking increasingly optimistic and fears of a broader market correction subsiding, I think both are still worth considering.
That said, I’ll wait until next week’s trading updates before making any definitive moves. The high valuations mean there’s plenty of positive news already priced in – and any earnings disappointment could sting.
