BAESF - BAE Systems: Not My Finest Moment But A 'Hold' Here

2024-07-30 11:51:07 ET

Summary

• Risks here include the potential impact of the changing geopolitical landscape and ESG mandates, leading to a "Hold" recommendation with a $42 price target for the ADR.
• BAE Systems has outperformed since 2022 but now faces valuation challenges in the European defense industry.
• Despite strong operational performance and growth prospects, the company's upside potential is limited due to its high valuation.

Dear readers/followers,

In this article, I'll take a closer look at updating my thesis for BAE systems. My coverage of this company began in November of 2022, and I unfortunately did not buy the stock. Since that time, the company has outperformed quite a bit. I wrote a second article and went "Hold" again, but the company outperformed from that level again - until a few months ago, when the trend turned somewhat.

So BAE Systems plc ( OTCPK:BAESY ) ( OTCPK:BAESF ), is a tricky play here. I should have purchased shares when it was undervalued, but the entire European defense industry (This is a defense company) was in a slump following over 2 decades of under-investment and under-utilization, only to be kick-started back to life by the Russian invasion of Ukraine. This has made it very tricky to even estimate what a European defense company should be worth, or valued at. We can see similar problems in not only BAE, but in Saab AB (publ) ( OTCPK:SAABY ), and Rheinmetall AG ( OTCPK:RNMBY ) - some of which I own, but where I'm increasingly looking at what valuation should be valid here....

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