Broker snap: Jefferies optimistic about second half at BAE Systems

1st Aug 2013 10:00

Jefferies has maintained its 'buy' rating and 350p target price for defence, security and aerospace firm BAE Systems, saying that the group's first-half results give it confidence in its full-year forecasts.BAE previously guided to "modest growth" in underlying earnings per share in 2013 before any benefit from the share buyback and before any impact from the Sequester. The company said it now expects double-digit growth, assuming both the benefit from the share buyback and downside arising from reductions to US defence budgets, as well as a satisfactory conclusion to Salam Typhoon pricing negotiations.Jefferies said that this revised guidance brings greater clarity "and we welcome that". The broker said: "In broad terms, we believe the guidance amounts to the same thing, but the latter [Typhoon pricing] is more straightforward, clearer and more robust, a welcome development."Jefferies said that while BAE will not be free of uncertainty near term, enough can be achieved by the end of the year for the stock's valuation to improve."We believe BAE's valuation has for at least two years been depressed by uncertainty about future US Defense Budgets, the possible impacts of Sequester and the protracted Typhoon VoP negotiations. We see much in the 1H13 result that should lend credibility and solidity to earnings in FY13 and FY14."Were the Typhoon VoP to be concluded in 2H13, as we now believe will happen, BAE's outlook would become even more solid, in our view."The stock was up 2.76% 258.2p by 09:46 on Thursday.BC