Broker snap: BAE to benefit from US budget shake-up

7th Apr 2009 10:16

Defence shares are in focus after the US announced a big shake-up of its military budget on Monday evening, with BAE Systems one of the winners, as a result of a proposed increase in production of the F-35 jet fighter, which it part builds.'BAE is the big beneficiary - it builds around 20% of the F-35,' said Evolution analyst Nick Cunningham.Credit Suisse agrees with Evolution, and said the benefits to BAE of the changes in the US budget should be ahead of investor expectations. The Swiss bank has reiterated its 'outperform' rating for the shares on which it has a price target of 475p.'The critical programme for future growth of the UK names (especially BAE), the F-35 JSF, remains intact ahead of market expectations. F-22 production is ended (which we estimate contributes about 0.6% of BAE sales) although we see potential for Congress to reinstate,' Credit Suisse said.The bank noted that Lockheed Martin's shares rose strongly on Wall Street last night, suggesting that the positive news on the F-35 outweighs the negative developments on the F-22.'BAE should see similar sentiment to Lockheed given its very significant position on F-35 relative to its small equipment exposure on F-22, and the difference in the sizes of the programmes (the US remains committed to procuring 2,443 F-35s versus ending F-22 at 183 units),' Credit Suisse believes.