By Anton Ladnyi, CFA · ex-Goldman Sachs · ex-J.P. MorganPublished Updated
BAESY — BAE Systems (ADR ~$116) on ~31x trailing P/E with FY2025 sales £30.7B (+10%), record £83.6B backlog; Q1 2026 +8% revenue/+9% EBIT confirms guidance; ROOK UAS protection win (May 2026) and MEO EPOCH 2 space contract (June 2) add US exposure; UK Defence Investment Plan due before July 7 NATO summit.
BAESY Price Target & Rating
BAESY's quantitative grade is Strong Buy, with moderate downside risk (CVaR -15.6%), and quality metrics (net margin 7%, ROE 18%). BAE Systems plc (BAESY) trades at $103.85 with a valuation grade of Strong Buy: a trailing P/E of 28.8x at a 31% premium to sector median, net margins of 7.3%, a DCF-implied intrinsic range of $112–$159 suggesting a +30% margin of safety, beta -0.07 (defensive risk profile).
DCF Valuation Range
Key Takeaways
Valuation: Strong Buy grade — P/E 28.8x — DCF range $112–$159 implies +30% margin of safety
Risk: CVaR -15.6% (95th percentile, 1-month) indicates moderate tail exposure; beta of -0.07 amplifies broad market moves in both directions
Strengths: Size 4.0/5, 7% net margin, 18% ROE dominate the factor profile
Catalyst: UK Defence Investment Plan release (before July 7 NATO summit) — key stock re-rating event; H1 2026 results (July 30) confirming +7-9% sales trajectory; MEO EPOCH 2 contract bookings
Why Strong BuyDCF model implies +30% margin of safety — valuation gap offsets weak near-term quality signals
Main riskValue score 2.0/5 signals premium pricing relative to peers
Tail riskCVaR -15.6% over one month at the 95th percentile
DCF range$112–$159 intrinsic range; margin of safety +30%
Best useCore large-cap Industrials holding — not a source of diversified sector exposure
Next watchEarnings delivery and valuation re-rating catalysts
Quantitative Factor Profile
Value
2.0 / 5
Quality
2.0 / 5
Momentum
3.0 / 5
Volatility
5.0 / 5
Size
4.0 / 5
Key Metrics
BAESY Key Metrics — BAE Systems plc 2026
Metric
Value
Current Price
$103.85
P/E Ratio (TTM)
28.8x
Forward P/E
19.9x
PEG Ratio
2.28x
P/S Ratio
2.7
EV/EBITDA
23.3
Beta
-0.07
Net Margin
7.3%
ROE
18.1%
Debt/Equity
76.7%
Dividend Yield
1.87%
CVaR (95%, 1M)
-15.6%
Market Cap
$76.4B
Analyst View
Anton Ladnyi, CFA · A.L. Capital AdvisoryUpdated 2026-06-11
Rating Rationale
BAESY — BAE Systems (ADR ~$116) on ~31x trailing P/E with FY2025 sales £30.7B (+10%), record £83.6B backlog; Q1 2026 +8% revenue/+9% EBIT confirms guidance; ROOK UAS protection win (May 2026) and MEO EPOCH 2 space contract (June 2) add US exposure; UK Defence Investment Plan due before July 7 NATO summit.
Investment Thesis
↑ Bull Case
Record £83.6B order backlog (+£5.8B YoY) provides multi-year revenue visibility; order intake £36.8B in FY2025 well above annual revenue
Norway Type 26 frigate — £10B government-to-government deal, UK's largest warship export, sustains Maritime segment for a decade
Turkey Typhoon: 20 aircraft (~£4.6B) + £2.5B training/support package; MBDA orders £1.1B across European customers
GCAP/Edgewing next-gen combat aircraft JV: Italy's defence minister confirmed Germany and Australia may join — materially expands programme scope and BAE's role as UK industrial lead
ROOK soft-kill protection system (US Army, late May 2026): defeats incoming UAS and anti-tank guided missiles — expands US Electronic Systems presence in highest-demand category
MEO EPOCH 2 constellation (June 2, 2026): MDA Space selected BAE for US Space Systems Command ballistic/hypersonic missile warning satellites — directly aligned with Golden Dome
The model points to a strong buy and the DCF math backs it — there is real margin of safety here, which is rare at this stage of the cycle. The DCF gap is striking — the model sees 30% upside, and market consensus is not pricing it. I watch for the catalyst that closes that gap: an earnings beat that resets forward estimates, a sector re-rating, or a margin inflection. Without a visible catalyst, valuation gaps can stay wide longer than logic suggests they should. The setup that would make me more positive is a quarter that confirms the operating leverage story. The setup that would make me cautious is any signal that consensus estimates are getting ahead of fundamentals.
— Anton Ladnyi, CFA
Earnings History
BAESY Earnings History — EPS Surprise Rate 2026
Quarter
EPS Est.
EPS Actual
Surprise
Q4 2025
—
$0.36
—
Q2 2025
—
$0.32
—
Q4 2024
—
$0.33
—
Q2 2024
—
$0.31
—
Quarterly EPS — Estimate vs Actual
Earnings Projections
BAESY Forward EPS Consensus Estimates 2026
Quarter
EPS Est.
YoY EPS
Analysts
Q4 2026
~$1.47
+308.0%
1
Q1 2027
~$1.31
+263.6%
1
~ Estimated from annual consensus — not a direct analyst survey
Hover each scenario for detail · current price $103.85
▼
Bear Case
$88
-15.3%
Fwd P/E: 16.3x
5.0 revenue CAGR · 20.0 exit multiple
◆
Base Case
$136
+31.0%
Fwd P/E: 25.2x
8.0 revenue CAGR · 26.0 exit multiple
▲
Bull Case
$168
+61.8%
Fwd P/E: 31.1x
12.0 revenue CAGR · 31.0 exit multiple
Pairwise Correlation Matrix
1 of 10 peer pairs correlated above 0.60 — diversification benefit within this cluster is structurally limited.
Extended Analysis — Buy, Hold or Sell? Risk Factors. Portfolio Fit.
Is BAESY a buy, hold, or sell?
BAESY carries a valuation grade of Strong Buy. The trailing P/E of 28.8 sits 31% above the Industrials sector median of 22.0x — a premium that demands sustained earnings delivery. Our discounted cash flow model produces an intrinsic range of $112–$159 — implying a +30% margin of safety at the current price of $103.85. The width of the DCF range reflects genuine uncertainty in the terminal growth rate assumption: the correct framework is a probability-weighted distribution over scenarios, not a single point estimate. See the DCF valuation framework for full methodology.
With a 0% beat rate on recent quarters, earnings predictability has been mixed. Analyst estimate revisions are trending upward.
What are BAESY's key risk factors?
With a beta of -0.07, BAESY exhibits a low-volatility risk profile relative to the broad market. The 95th-percentile CVaR of -15.6% on a one-month horizon should inform position sizing directly: at a 10% portfolio weight, this tail event contributes approximately 1.6% of total portfolio loss in the worst 5% of months. Net margins of 7.3% fall below the Industrials sector average of 11%, suggesting margin pressure. Return on equity of 18.1% suggests solid capital efficiency. The balance sheet is conservatively leveraged at 77% debt-to-equity.
How does BAESY fit in a diversified portfolio?
At typical HENRY portfolio weights — 10–20% of the equity allocation — BAESY carries a beta of -0.07, meaning it amplifies broad market moves proportionally. The appropriate weight is not a function of conviction alone, but of the full covariance structure across all holdings. See the Ledoit-Wolf covariance framework for the methodology behind these calculations.
Among closely correlated names, BAESY shows the strongest co-movement with RYCEY (0.55), EADSY (0.39), THLEF (0.38). Investors seeking diversification should note these correlation dynamics when constructing multi-asset portfolios.
True portfolio risk is a function of the full covariance structure across all holdings — not individual stock metrics. The Portfolio Health Check quantifies this at the portfolio level: it surfaces hidden concentration, marginal CVaR contributions, and the degree to which your overall allocation deviates from an optimal risk-adjusted mandate. The BAESY analysis here is a single node in that larger structure.
BAE Systems plc (BAESY) carries a Strong Buy quantitative rating from A.L. Capital Advisory, derived from Discounted Cash Flow intrinsic value analysis, five-factor model scoring (Value, Quality, Momentum, Volatility, Size), and CVaR tail risk measurement. At $103.85, the DCF midpoint margin of safety is +30% (intrinsic value range: $112 bear – $159 bull). Composite factor score: 3.2/5. Strongest factor: Volatility (5.0/5). Weakest factor: Value (2.0/5). Trailing P/E: 28.8x. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Portfolio Construction Framework →
What is the average analyst target price for BAESY?
Wall Street consensus target for BAESY: $135.76 (+30.7% upside from the current price of $103.85). The analyst target range spans $131.53 (most bearish) to $140.00 (most bullish). Consensus recommendation: None. Note that analyst price targets typically reflect a 12-month forward horizon and are derived from a blend of DCF, comparable-company, and sum-of-the-parts analysis. A.L. Capital Advisory’s quantitative Strong Buy rating is produced independently — from DCF intrinsic value, five-factor model scores, and CVaR tail risk — and does not mechanically track Street consensus. When the two diverge, the divergence itself is informative: it can reflect differences in time horizon, valuation methodology, or the degree to which the current price already discounts the consensus case. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Monte Carlo Simulation Framework →
How does BAESY score on Value, Quality, Momentum, Volatility, and Size?
BAESY five-factor scores (A.L. Capital Advisory, 1–5 scale): Value 2.0/5 (below average) — measures current price versus DCF intrinsic range and trailing earnings multiples; Quality 2.0/5 (below average) — captures profitability metrics including return on equity, net margin (ROE: 18.1%) and net margin (7.3%); Momentum 3.0/5 (neutral) — reflects recent price trajectory and earnings surprise consistency; Volatility 5.0/5 (strong) — inverse measure derived from beta, where lower historical volatility earns a higher score; Size 4.0/5 (above average) — market capitalisation rank (mega-cap $1T+ scores 5/5). Composite: 3.2/5. Factor scores above 4.0 signal a tailwind in that dimension; below 2.0 signals a material headwind. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Black-Litterman Model →
What is BAESY's tail risk and CVaR?
The 95th-percentile Conditional Value at Risk (CVaR) for BAESY on a one-month horizon is -15.6%. CVaR represents the expected average loss in the worst 5% of monthly outcomes — a more conservative tail risk measure than standard VaR, which only marks the loss threshold. Beta of -0.07 indicates below-market volatility. For reference, a diversified S&P 500 ETF carries a one-month CVaR of roughly -8% to -12% in normal market conditions; individual equity CVaR is higher due to idiosyncratic risk. At the portfolio level, what matters is the marginal CVaR contribution of each holding — not its standalone figure. The A.L. Capital Advisory Portfolio Health Check quantifies each position's marginal tail-risk contribution across your entire holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: CVaR & Tail-Risk Methodology →
What is BAESY's intrinsic value and DCF price target?
A.L. Capital Advisory's DCF model produces an intrinsic value range of $112 (bear case) to $159 (bull case) for BAE Systems plc (BAESY). At $103.85, the midpoint margin of safety is +30% (positive = discount to intrinsic mid; negative = premium). The bear-to-bull spread reflects genuine sensitivity to the two dominant DCF inputs: the terminal growth rate and WACC. Terminal value typically accounts for 60-80% of total intrinsic value in most equity DCF models, which is why a range is more analytically sound than a point estimate. The central analytical question is not what the DCF outputs as a single number but which growth trajectory the current market price already discounts. All DCF analysis follows CFA Institute standards and is conducted by Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework →
What would trigger a rating upgrade or downgrade for BAESY?
Upgrade trigger: Upgrade to Strong Buy on evidence of accelerating earnings surprise magnitude combined with improvement in the Value factor score — specifically if the current 28.8x P/E is supported by an upward revision to DCF terminal growth assumptions. Downgrade trigger: An earnings miss at current valuations (28.8x trailing P/E) where there is limited earnings cushion to absorb negative surprises; or a sustained reversal in the Quality and Momentum factor scores for two or more consecutive quarters. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Investment Policy Statement Framework →
How does BAESY contribute to portfolio risk and diversification?
BAESY carries a beta of -0.07 (low-volatility / defensive relative to the broad equity market). A beta above 1.0 means the position amplifies market moves in both directions at a typical portfolio weight. Strongest peer co-movement: RYCEY (0.55), EADSY (0.39), THLEF (0.38). Holding BAESY alongside these names in the same portfolio increases concentration risk. True portfolio risk is a function of the full covariance structure — a single stock's beta does not reveal its marginal contribution to portfolio tail loss. The A.L. Capital Advisory Portfolio Health Check quantifies concentration risk (Herfindahl-Hirschman Index), pairwise correlations, and marginal CVaR contribution across all your holdings. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: Ledoit-Wolf Covariance Framework →
What quantitative methodology does A.L. Capital Advisory use to analyse BAESY?
A.L. Capital Advisory analyses BAE Systems plc (BAESY) using a four-component quantitative framework grounded in CFA Institute standards. (1) DCF Valuation: projects free cash flows under bear and bull assumptions, discounts at WACC to produce an intrinsic value range with margin-of-safety calculation. (2) Five-Factor Scoring: each equity is scored 1–5 on Value, Quality, Momentum, Volatility, and Size. (3) CVaR Tail Risk: 95th-percentile Conditional Value at Risk from historical simulation of daily returns on a one-month horizon. (4) Earnings Surprise Analysis: quarterly beat rate and magnitude are incorporated into the Momentum and Quality factor scores. The current Strong Buy rating for BAESY is the output of applying this complete framework to current data. Analysis by Anton Ladnyi, CFA (ex-Goldman Sachs, ex-J.P. Morgan) · A.L. Capital Advisory. Full methodology: DCF Valuation Framework → · CVaR & Tail-Risk Methodology →
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This analysis is produced using a systematic quantitative framework applied to market data and does not constitute investment advice. Prose commentary is AI-assisted and generated from structured quantitative inputs. All data and metrics are as of 2026-06-11 and are point-in-time estimates subject to revision without notice. CVaR figures are based on historical simulation and do not guarantee future outcomes. DCF ranges and upgrade/downgrade triggers are forward-looking statements based on current assumptions and may not materialise. Past performance does not guarantee future results. This analysis does not account for individual circumstances, tax position, or investment objectives — consult a qualified financial advisor before making investment decisions. This content is intended for informational purposes only and does not constitute regulated investment advice under MiFID II or FCA guidelines. This content is not intended for US persons or residents of jurisdictions where its distribution would be contrary to local law or regulation. This service is not directed at residents of Finland, Sweden, Norway, Denmark, Iceland, or Poland. The author may hold long or short positions in securities mentioned in this analysis. Nothing on this page represents a solicitation to buy or sell any security. A.L. Capital Advisory is an independent private advisory practice and is not affiliated with BAE Systems plc.
CFA Portfolio Advisory — BAESY
Discuss this analysis, position sizing, or your full portfolio mandate with Anton Ladnyi, CFA.
