There’s no stopping the BAE Systems (LSE: BA) share price. Today, the FTSE 100 defence giant delivered yet another storming set of results, and it’s driven the stock even higher.
The shares jumped more than 5% after it reported a 10% leap in full-year 2025 sales, which hit a record £30.7bn. That beat expectations, which were already pretty high, with growth across every division. Underlying earnings before interest and tax climbed 12%, as did underlying earnings per share. Margins edged higher too, with return on sales notching up from 10.6% to 10.8%.
Flying FTSE 100 stock
Its order backlog was already fabulous. Now it’s surged by another £5.8bn to a record £83.6bn. Demand for BAE’s kit remains relentless as governments ramp up defence spending in an increasingly unstable world.
Free cash flow came in strong at £2.16bn, despite heavy investment, in good news for the dividend. Most investors see BAE Systems as a growth stock but it boasts a solid track record of increasing dividends. This continued today, with a 10% increase from 33p to 36.3p per share. The trailing yield is a modest 1.63%, but shareholder rewards should continue to rise over time.
Capital expenditure was close to record levels at around £1bn, while research and development spending increased again. BAE is investing hard to secure future growth.
Put simply, there’s a global arms race, and BAE Systems is one of the winners. Many investors won’t like that. I don’t like that. I’d rather live in a world of peace, where BAE Systems could make other stuff, but that’s not how it is.
So can the growth continue? The shares are up more than 50% over the last year, and almost 325% over five, with dividends on top. Inevitably, the stock now looks expensive, with the price-to-earnings ratio nudging 30.
Yet a quick look at the news headlines suggest there’s a good chance it can continue to grow, as US-China tensions simmer, the Ukraine war drags on, and Donald Trump turns up the heat on Iran.
More growth to come?
Much of the recent growth has been driven by the assumption that Europe will start spending more on defence. Germany has led the way, breaking debt constraints to fund a further €500bn of defence spending. Yet we still can’t rely on Europe to spend big, as the continent’s economy struggles, and some countries feel less urgency than those bordering Russia.
That massive order backlog offers security. However, investors being what they are, they’ll want to see it continue to grow. If orders slow at some point, the shares could take a hit even if the overall backlog remains massive.
Expectations are high. The board guided for a 9% to 10% increase in 2026 profits, with forecast sales growth of 7% to 9%. Those are ambitious numbers and if BAE Systems falls short, the shares will suffer.
We may see profit takers moving in after today’s leap. But with a long-term view, I think the shares are still well worth considering, even at this price. Investors (like me) who already have a big stake in the stock may consider smaller defence players instead. But they’re not cheap either.
