BAE Systems plc (LON: BA) has been one of the standout winners of the post‑2022 defence spending cycle. On 10 December 2025, the FTSE 100 defence group is trading around the 1,700p level, down from record highs reached in October but still showing powerful multi‑year gains and a full order book backed by rising NATO budgets. [1]
Investors now face the obvious question: after a huge rerating and a flurry of new contracts, is there still meaningful upside in BAE Systems’ share price, or has most of the good news been priced in?
Where the BAE Systems share price stands on 10 December 2025
Intraday on 10 December 2025, BAE Systems shares are changing hands at about 1,705p in London, having opened near 1,701p and traded in a tight 1,700–1,716p range. That’s roughly 1–1.2% lower on the day, reflecting modest consolidation after a strong run. [2]
Key trading metrics:
- Previous close: 1,726.5p
- 52‑week range: 1,127p to 2,073p
- Market capitalisation: ~£51bn
- Trailing P/E ratio: ~26x
- Dividend yield: ~2.0% based on the current share price. [3]
Despite the recent pullback, the stock remains a big long‑term winner:
- Year‑to‑date (YTD) total return: roughly 44–46%, including dividends. [4]
- Five‑year total return: over 210%, dramatically outperforming the broader FTSE 100. [5]
For international investors, the US‑traded ADR BAESY is changing hands around $88–89 per share in December 2025, up roughly 48% from about $60 at the start of the year, based on monthly price data. [6]
What BAE Systems actually does
BAE Systems is a diversified defence and aerospace group operating across five major segments: Electronic Systems, Platforms & Services, Air, Maritime, and Cyber & Intelligence. It supplies combat aircraft, warships, submarines, armoured vehicles, munitions, electronic warfare systems and cyber‑security services to governments in the UK, US, Europe, the Middle East, Australia, Japan and other allied markets. [7]
The company is one of Europe’s largest defence contractors and a top supplier to the US Department of Defense via its US subsidiary, BAE Systems Inc.
This mix of advanced platforms, electronics and services means earnings are driven less by one‑off “big ticket” programmes and more by long‑dated, multi‑year contracts and support work – a key reason the market has been prepared to pay a premium multiple.
Record order book and strong 2025 trading momentum
BAE’s fundamental story in 2025 has been about volume, visibility and velocity of orders.
Half‑year 2025 results: growth backed by backlog
For the six months to 30 June 2025, BAE reported: [8]
- Sales: £14.6bn, up 11% year‑on‑year
- Underlying EBIT: £1.55bn, up 13%
- Underlying EPS: 34.7p, up 12%
- Order intake: £13.2bn
- Order backlog:£75.4bn, near record levels
These numbers underline two important points:
- Growth is broad‑based – all major sectors contributed to higher sales and profit.
- The backlog provides multi‑year revenue visibility, supporting the investment case even if macro or political sentiment turns temporarily negative.
November 2025 market update: more than £27bn of orders
In a November 12 trading update, BAE told investors that more than £27bn of orders had been secured so far in 2025, with further deals expected before year‑end. Management reaffirmed guidance for: [9]
- Sales growth: +8–10% for 2025
- Underlying operating profit growth: +9–11%
The same update highlighted orders from Turkey for Typhoon fighter jets and from Norway for Type 26 frigates, illustrating how European rearmament is flowing directly into BAE’s air and maritime franchises. [10]
New contracts in Q4 2025: armoured vehicles, amphibious assault and naval firepower
The final quarter of 2025 has produced a steady stream of new awards that reinforce the growth story.
1. US Army Armored Multi‑Purpose Vehicles (AMPV)
The US Army awarded BAE Systems a $198.4m contract modification to produce 240 additional Armored Multi‑Purpose Vehicles, lifting the total contract value to roughly $2.48bn and extending work in York, Pennsylvania, out to May 2028. The Pentagon described the award as necessary to “prevent a break in production”, underlining the programme’s importance. [11]
2. Amphibious Combat Vehicles (ACV) for the US Marine Corps
Zacks and Nasdaq reports show that BAE has also secured a $184.4m deal for 30 Amphibious Combat Vehicles, further cementing its position in the US Marine Corps’ next‑generation amphibious fleet. [12]
3. CV90 infantry fighting vehicles for Denmark
In late November, BAE landed a contract worth around $450m to deliver 44 additional CV90 MkIIIc infantry fighting vehicles to Denmark, expanding the country’s existing CV90 fleet and supporting wider army modernisation. [13]
4. US Navy Mk 41 Vertical Launch System canisters
On 25 November, BAE announced a $22m US Navy contract to produce missile canisters for the Mk 41 Vertical Launching System. If all options are exercised, the total contract value could reach about $317m, on top of a separate $738m award for similar canisters granted in July. [14]
5. Multifunction Modular Masts for Virginia‑class submarines
In early December, BAE disclosed a $36m production contract from Lockheed Martin to provide Multifunction Modular Masts for Virginia‑class US Navy submarines, delivering key sensor and communications capability for undersea platforms. [15]
Taken together, these awards show BAE adding high‑margin, mission‑critical work across land, sea and subsurface domains. While none of these contracts are individually transformational, they strengthen the order book and support management’s guidance for sustained earnings growth.
Macro backdrop: a structural defence spending upcycle
BAE’s order book strength is not happening in a vacuum. Global and European defence spending is running at record highs.
- According to the Stockholm International Peace Research Institute (SIPRI), NATO members collectively spent $1.5 trillion on defence in 2024, with a record number of allies now above the 2% of GDP guideline. [16]
- EU analysis suggests defence outlays by EU NATO members are projected to rise from 1.99% of GDP in 2024 to about 2.04% in 2025, with more than €100bn in additional spending expected by 2027. [17]
In the UK specifically, the 2025 Strategic Defence Review and subsequent policy statements reaffirm the government’s plan to raise defence spending from roughly 2.3% to 2.5% of GDP by 2027, with longer‑term aspirations to go higher. The review explicitly casts defence as an “engine for growth” and outlines an additional £75bn in spending over the next six years. [18]
Those commitments, alongside continued tensions with Russia and regional security challenges in Europe and the Indo‑Pacific, support the view that the current demand environment is structural, not cyclical – a key plank of the bull case on BAE Systems.
Digital defence: Velhawk cybersecurity and the OneArc platform
BAE is not just a legacy hardware supplier. Recent announcements show a deliberate push into software‑defined and data‑driven defence.
Velhawk: AI‑driven cyber defence
In early December, BAE unveiled Velhawk, an AI‑driven cybersecurity framework aimed at government and national security customers. According to coverage from ExecutiveBiz, Velhawk uses automation, artificial intelligence, adaptive analytics and threat intelligence to detect, prioritise and remediate cyber threats across complex networks, with the goal of “automating defence” and allowing human analysts to focus on mission‑critical tasks. [19]
This sits squarely in BAE’s Cyber & Intelligence segment, which already provides security and intelligence services to governments and large enterprises. Over time, a scalable platform like Velhawk could introduce more recurring, software‑style revenue into what has historically been a lumpier project‑based business.
OneArc: synthetic training and simulation
In November, BAE completed the rebranding of Bohemia Interactive Simulations (BISim) and Pitch Technologies as BAE Systems OneArc, a business focused on full‑spectrum synthetic environments for training, mission rehearsal and experimentation. OneArc combines established simulation and interoperability tools with BAE’s scale, aiming to provide comprehensive virtual training environments for NATO and allied militaries. [20]
Simulation and digital twins are likely to be a growing part of defence budgets, allowing militaries to train and test doctrine at lower cost and risk. For BAE, OneArc offers a way to complement its hardware franchises with higher‑margin digital services.
Valuation check: has the rally gone too far?
With the share price not far below its all‑time high and trading on a mid‑20s earnings multiple, valuation is the central debate.
Earnings and cash flow
Google Finance data for fiscal Q2 2025 (quarter to June) show: [21]
- Quarterly revenue: ~£6.8bn, up almost 9% year‑on‑year
- Net income: ~£485m, up ~2%
- EBITDA: ~£915m, up ~6%
- Free cash flow: ~£406m, up ~16% versus the prior period
This confirms BAE is not just winning orders; it is converting them into profit and cash.
Market multiples
Across several data providers, BAE Systems currently trades on: [22]
- P/E ratio: roughly 25–26x trailing earnings
- Price‑to‑book: ~4.8x
- Dividend yield: around 2.0% on the current price
That multiple is clearly above the FTSE 100 average, but the market is discounting double‑digit EPS growth, strong cash generation and a relatively defensive earnings profile.
Independent valuation services also see room for upside:
- Simply Wall St estimates BAE is ~20% undervalued on a discounted cash flow basis, even after a roughly 50% share price surge over the past year. [23]
- A recent Yahoo Finance piece notes that the shares have slipped about 12% from their recent peak, slightly easing valuation pressure while fundamentals remain strong. [24]
Analyst forecasts: consensus still points to further upside
Sell‑side analysts remain broadly constructive on BAE Systems.
- One compilation of 27 analyst estimates puts the 12‑month average target price at around 2,100p, implying roughly 20–25% upside from current levels, with a range from about 1,313p to 2,625p. The consensus recommendation is “Buy.” [25]
- Another forecast set pegs the average target at around 2,050p, with a similar upside profile and broadly positive ratings. [26]
On top of that, more qualitative research and commentary – from places like Seeking Alpha and UK retail‑investor outlets – tends to emphasise long‑term tailwinds from European rearmament and BAE’s dominant positions in programmes such as Typhoon, F‑35 components, Type 26 frigates and submarines. [27]
While price targets are never guarantees, the broad message is that professional forecasters see more room to run, albeit from a much higher base than a few years ago.
Dividends, buybacks and capital allocation
For income‑focused investors, BAE Systems offers a blend of growing dividends and opportunistic buybacks.
Data compiled by independent dividend trackers show: [28]
- 5‑year average dividend yield: ~3.5%
- 10‑year average dividend yield: ~4.1%
- Payout ratio: around 48% of earnings (three‑year average), leaving ample room for reinvestment and acquisitions.
BAE’s November 2025 investor materials and earlier updates point to: [29]
- Ongoing share repurchases (roughly £500m of buybacks flagged for 2025 alongside past programmes).
- Continued dividend growth, with the 2025 interim dividend paid in early December.
A recent analysis in The Times notes that BAE has spent roughly £4.8bn on acquisitions in the past couple of years and is running a £1.5bn share buyback programme, while still forecasting EPS growth of 8–10% in 2025 and 12% in 2026. [30]
This mix of organic growth, bolt‑on acquisitions, dividends and buybacks is a key plank of the total‑return story.
Key risks: what could derail the bull case?
Despite the strong fundamentals, BAE Systems is not risk‑free. Investors should keep an eye on several pressure points:
- Geopolitical shifts and peace deals
The stock has at times sold off sharply when markets have priced in progress toward peace in Ukraine or the Middle East, as seen in October when defence names dragged on the FTSE 100 after headlines about potential ceasefires. [31]
A sustained reduction in perceived threat levels could eventually translate into slower defence spending growth, particularly in Europe. - Budget cycles and government shutdowns
BAE’s November trading update explicitly warned that a prolonged US government shutdown could delay contract funding and payments, even though no material impact had been seen so far. [32] - Programme execution and cost inflation
Large, complex programmes – such as submarines, frigates and advanced fighter jets – carry execution risk, including potential cost overruns, delays or contractual disputes that can erode margins. - Valuation risk
At roughly 25–26x trailing earnings, the stock is priced for continued strong growth. Any disappointment on guidance, cash generation or political newsflow could trigger multiple compression, even if the long‑term story remains intact. [33] - ESG and ethical considerations
Some institutional and retail investors avoid defence stocks on ethical grounds, which can cap valuation multiples relative to high‑growth technology or consumer names, regardless of fundamentals.
Is BAE Systems stock still a buy after its 2025 surge?
As of 10 December 2025, the investment case for BAE Systems looks broadly intact, but more nuanced than during earlier stages of the rally:
Positives
- Multi‑year order backlog (~£75bn and rising) with strong momentum in land, sea, air and cyber. [34]
- Structural tailwinds from NATO and UK defence spending plans. [35]
- Growing exposure to higher‑margin digital areas such as Velhawk cybersecurity and OneArc synthetic training. [36]
- Disciplined capital allocation with rising dividends and sizeable buybacks. [37]
Challenges
- A valuation that already discounts robust growth and high returns, leaving less room for error. [38]
- Sensitivity to news about peace negotiations and shifting political priorities. [39]
In simple terms, BAE Systems today looks less like a classic deep‑value opportunity and more like a quality compounder at a fair (but no longer cheap) price, backed by unusually strong secular tailwinds.
For investors who believe the global defence build‑up will continue and that BAE can execute on its order book while scaling new digital platforms, the stock could still offer attractive long‑term risk‑adjusted returns, even if short‑term volatility persists.
For those more cautious on geopolitics or wary of high multiples, the recent pullback may not yet constitute a “table‑pounding bargain”, but the name remains one of the most strategically important and financially robust plays in the European defence sector.
References
1. www.investing.com, 2. www.investing.com, 3. www.hl.co.uk, 4. finance.yahoo.com, 5. finance.yahoo.com, 6. www.digrin.com, 7. finance.yahoo.com, 8. markets.ft.com, 9. www.reuters.com, 10. www.reuters.com, 11. defence-blog.com, 12. finance.yahoo.com, 13. finance.yahoo.com, 14. www.baesystems.com, 15. www.prnewswire.com, 16. www.sipri.org, 17. www.europarl.europa.eu, 18. www.gov.uk, 19. www.executivebiz.com, 20. onearc.com, 21. markets.ft.com, 22. www.advfn.com, 23. simplywall.st, 24. finance.yahoo.com, 25. valueinvesting.io, 26. www.tradingview.com, 27. seekingalpha.com, 28. stocksguide.com, 29. investors.baesystems.com, 30. www.thetimes.com, 31. markets.financialcontent.com, 32. www.reuters.com, 33. www.advfn.com, 34. markets.ft.com, 35. www.sipri.org, 36. www.executivebiz.com, 37. stocksguide.com, 38. www.advfn.com, 39. markets.financialcontent.com
