London, July 10, 2026, 16:32 (BST)
BAE Systems LON:BA ticked up about 0.5% to around 1,849 pence in late Friday trading, after delayed data out of London. Shares clawed back just a bit after three straight drops. The stock is still down 8.7% from Monday’s 2,025-pence close, following a 4.47% slide Thursday.
The bigger issue is valuation. BAE is sticking with its 2026 underlying EPS growth forecast of 9% to 11% from 75.2p. With Friday’s levels, the forward P/E drops to 22.1–22.6 times, down from 24.3–24.7 times at Monday’s close. P/E compares share price to annual earnings. A forward P/E uses forecasts for earnings.
| BAE valuation reset | July 6 close | July 10 late trade | Change |
|---|---|---|---|
| Share price | 2,025p | 1,848.5p | -8.7% |
| Implied 2026 P/E | 24.3–24.7x | 22.1–22.6x | Down about 2.2x |
| Discount to 52-week high | 14.2% | 21.7% | Gap widened 7.5 points |
The reset got a new marker on Friday after Jefferies lowered its BAE price target to 2,100p from 2,200p, keeping a “hold” call. The new target is 13.6% above the latest price of 1,848.5p, compared with 19% before—down by about 5.4 points. Morningstar
Jefferies lifted Leonardo BIT:LDO to “buy” and put it at the top of its European aerospace and defence list, swapping out Rheinmetall (ETR:RHM). The bank said it now favors defence electronics and air-defence. Jefferies analyst Chloé Lemarié and her team said Leonardo’s stake in missile group MBDA could be a big reason for upside in its 2029 outlook. Investing.com
The shift is key for BAE as the market gets choosier across a sector still supported by strong military spending. Now, investors aren’t just paying for defense exposure—they’re also breaking out stocks by valuation, contract performance and how soon profits come in.
BAE still holds a big premium on its trailing earnings, even after shares fell this week. FTSE Russell had its trailing P/E at 26.9 at Thursday’s close. That’s above the 22.2 for the UK aerospace and defence sector and 22.1 for Babcock International Group (LON:BAB). That puts BAE at about a 21% premium over both.
| Valuation at July 9 close | Trailing P/E | BAE premium |
|---|---|---|
| BAE Systems | 26.9x | — |
| UK aerospace and defence sector | 22.2x | 21.2% |
| Babcock International | 22.1x | 21.7% |
The higher premium means BAE has more to prove. The latest update kept sales growth guidance at 7% to 9%, underlying EBIT seen up 9% to 11%, and free cash flow set to beat £1.3 billion. EBIT, or earnings before interest and tax, is the group’s chosen profit metric. Free cash flow covers what’s left after running and capital costs. CEO Charles Woodburn said BAE “delivered a strong start to 2026, underpinning our full-year guidance.”
BAE’s next big test lands July 30 with its half-year numbers. Investors will watch if order flow and contract milestones are driving profit and cash, instead of just focusing on backlog size. The stock drop has cut around two P/E points off the multiple for its 2026 earnings guide.
The downside can’t be ruled out yet. Contract timing could hit near-term cash conversion, even if the company keeps its full-year targets. Currency is another swing factor: BAE says a five-cent shift in sterling versus the dollar alters annual sales by around £500 million, EBIT by £70 million and EPS by about 1.4p. If sector valuations fall again, that could more than offset growth in earnings.
Friday’s move is more like a steadying out than a real turnaround. BAE is trading at roughly 22 times forecast earnings now, which is cheaper compared to four days back. Even so, the stock’s trailing multiple is still about 20% above its UK sector, so it doesn’t look outright cheap yet.
