BAE Systems (BAESY)

What Moves the Stock

1. 01US and UK defense budget appropriations and multi-year spending trajectories - particularly Army modernization, naval shipbuilding accounts, and munitions procurement which directly impact order intake
2. 02Major contract awards and program milestones - Tempest next-generation fighter development decisions, AUKUS submarine partnership scope, US Army vehicle competitions affecting 5-10 year revenue pipelines
3. 03Geopolitical escalations driving urgent procurement - Ukraine conflict sustaining artillery/munitions demand, Middle East tensions supporting Saudi Arabian orders, Indo-Pacific focus accelerating naval programs
4. 04Program execution and margin performance - Dreadnought submarine cost control, Typhoon production efficiency, electronic systems margin expansion from volume leverage
5. 05Sterling/dollar exchange rate movements - approximately 60% of costs in GBP while 40% of revenue in USD creates natural FX sensitivity of 3-5% earnings impact per 10% currency move
6. 06Electronic Systems (US-focused): ~38% - includes precision-guided munitions, electronic warfare systems, military GPS, and vehicle electronics with high aftermarket content
7. 07Platforms & Services (US): ~25% - combat vehicles, artillery systems, amphibious assault vehicles, and sustainment contracts with multi-decade support revenue
8. 08Air (UK/International): ~20% - Typhoon production/upgrades, F-35 components manufacturing, and Hawk trainer aircraft with long-term support agreements

BAESY Chart

My Notes

• value and dividend - trades at modest valuation multiples (17-19x EV/EBITDA) relative to US defense primes (20-25x) due to UK domicile…
• Rising rates have modest negative impact through two channels: (1) higher discount rates compress valuation multiples for long-duration cash…
• Watch on earnings: US defense budget topline and procurement account growth rates - particularly Army and Navy accounts which drive 35% of BAE revenue, UK defense spending as % of GDP - current 2.3% with political pressure to reach 2.5-3.0% affecting multi-year equipment budgets, GBP/USD exchange rate - impacts translation of US earnings and competitive positioning on international campaigns.