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BAE comeback is on

Europe's biggest military contractor's long-term outlook looks promising. But don't expect improved defence spending to immediately translate into success
February 10, 2016

BAE Systems' (BA.) shares surged at the end of last year after the UK and US governments finally pledged to release the shackles on defence budgets. This U-turn, which was influenced by a barrage of security threats across the globe, has prompted analysts to reclassify the contractor’s depressed shares as good value.

IC TIP: Buy at 470p

Most of the major brokerage firms have since upgraded their outlooks. But that hasn't stopped BAE's shares from falling since the turn of the year, a factor attributed to the general disdain for equity markets in times of global economic uncertainty.

Investors may also be concerned that an improved backdrop isn't likely to yield immediate success. The US has only just passed its budget, and it will take time for work on the new UK submarine class and global combat ship to filter through to the company's numbers. The same can be said for the anticipated pick-up in orders for Typhoon jets from Saudi Arabia. Progress on these major projects will be big talking points when BAE reports its 2015 results on 18 February.