The stock has risen about 90% over the past two years. BAE Systems expects earnings to rise even higher in 2023.
BAE's 2022 revenue rose 4.4% year-on-year to £23.3bn, while basic earnings per share rose 9.5% to £55.5bn, compared to consensus forecasts of £53.9bn.
Thanks to the improved business results, the group raised the full-year dividend to 27 GBX per share, corresponding to a dividend yield of about 2.7% at the current share price.
The group also launched a share buyback scheme worth around £0.8bn during the year. Typically, when businesses buy back shares, there is the potential for basic earnings per share to increase over time due to reduced dilution.
BAE's balance sheet position was also very strong at the end of 2022. Cash on hand was £3.1bn while net debt was £2bn.
BAE’s management is confident about the outlook for the year ahead, with the group expecting sales to grow by 3% to 5% in 2023, driven largely by its electronic systems business, which specialises in secure communications and other technologies for government customers. New orders totalled a record £37.1bn, pushing its order backlog to £58.9bn.
Overall, the 2022 results and 2023 outlook are positive. BAE has shown the qualities of a good stock to buy with revenue and profit growth, steady dividend increases and share buybacks.
After recent gains, the possibility of BAE Systems' price increase in the next period will be a topic of interest to investors.
The group expects profit growth of 5-7% this year. Based on this forecast range and compared to last year's underlying profit, it is likely that 2023 profit will hover around GBX58.3.
Based on the projected earnings and current stock price, BAE’s forward P/E ratio would be around 17. So, in the short to medium term, the possibility of explosive price growth is not high. However, this stock is more suitable for the long term, once the effect of dividends is taken into account.
Of course, for BAE Systems to continue to increase its prices, Western countries will have to continue to spend heavily to improve their defense capabilities. This prospect is completely feasible in the coming years given the current unpredictable geopolitical situation.
However, they are still likely to cut defence spending at some point, in which case BAE investors will only enjoy lower returns.
Analysts at Jefferies recently raised their price target on BAE shares from GBX1,000 to GBX1,060. Overall, BAE is rated a strong buy with a 12-month price target of GBX1,056.
BAE's dividend schedule is published on the group's website, with the ex-dividend date set at 20/04 and the payment date at 01/06 with a dividend of 16.6 GBX. 1 GBP (British pound) can be exchanged for 100 GBX.
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