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2025’s been a phenomenal year for BAE Systems‘ (LSE:BA.) share price. The aerospace and defence giant’s watched its market-cap grow a staggering 70% over the last six months. And it isn’t exactly a secret why.
With geopolitical tensions on the rise and global conflict never out of the news, some investors have rushed to buy shares in weapons manufacturers. Other defence giants such as Rtx Corp, Howmet Aerospace, and Babcock International are also seeing significant share price gains. We at The Motley Fool will never focus on profiting from war. But there’s no denying BAE Systems’ a company that’s hard to ignore as a massive defence contractor and information security business that should prosper beyond the current tragic backdrop.
The question many investors are now asking, is it too late to buy? So let’s explore where the experts think the BAE share price could end up 12 months’ from now.
Rapid order growth
Beyond the most recent outbreak of conflict in Iran, a general trend of re-armament and defence modernisation among NATO allies has emerged this year. And subsequently, BAE Systems has had little trouble securing new contracts. As of May, the list of new orders includes:
- An $800m integration support contract with the US Air Force
- A $300m contract to supply ARCHER artillery systems
- A $356m contract for armoured multi-purpose vehicles
- A $360m contract for amphibious combat vehicles
For 2025, management’s guidance suggests up to 9% revenue growth can be expected, along with a potential 10% boost to earnings per share and over £1.1bn in free cash flow generation. Combining all this with the group’s existing £77.8bn order backlog, the analyst team at UBS has issued a Buy recommendation with a BAE share price target of 2,350p.
Compared to where the stock’s trading today, that suggests a further 20% rise could be on the horizon.
Taking a step back
While UBS appears to be quite bullish, other institutional analysts think a lot of the anticipated growth might already be baked into the share price. In fact, the average consensus for BAE shares is 1,860p – roughly in line with where the stock’s trading today.
At a price-to-earnings ratio of 30, it seems the valuation’s primarily being driven by future growth expectations. And if performance falls short, volatility could emerge. However, even when ignoring this valuation risk, UBS has highlighted a few concerns.
A large chunk of the firm’s revenue comes from the US. And with ongoing reforms to the US Department of Defense, shifting budget allocations could make future growth more challenging as the risk of delays rises. At the same time, material shortages, particularly semiconductors, have already started adversely impacting BAE’s maritime segment, resulting in a slowdown in ship repairs.
Additionally, the pressure from ESG investors also exposes the defence giant to reputational risk that may dampen sentiment in the long run.
The bottom line
The momentum driving the share price may be set to continue. However, fulfilling new customer orders doesn’t happen overnight, and the stock’s valuation is becoming increasingly rich.
Personally, with most of the expected growth seemingly already priced in, investors seeking exposure to the defence sector may want to explore other opportunities that have so far flown under the radar.
