BAE shares drop despite optimistic investor's update
The defence and aerospace giant BAE Systems released its full-year guidance for investors yesterday, detailing a positive outlook amid increased defence spending and reduced deficits. So why is the BAE share price falling?
- Billions of pounds worth of contracts awarded in the past year
- £230 million contract from the US Pentagon, announced yesterday
- BAE is on track to meet annual earning targets, with 10% annualized growth projected
- Despite this, BAE share price dropped this week and is down 2.5% from Monday.
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BAE remain confident in their full year ambitions
The UK defence giant BAE Systems latest trading statement has reaffirmed its confidence in reaching its top-line growth and margin expansion as detailed in its full-year guidance. Along with this, the update details billions of pounds worth of recent contracts, including a just-announced £230 million contract from the Pentagon to supply GPS missile tracking modules.
BAE also announced that it was making moves to reduce its pension deficit and that it is on track to surpass its annual earnings targets, due to a revised upwards projection of 10% earnings growth for the financial year. BAE Systems Chief Executive, Charles Woodburn, stated 'our good operational performance underlines our confidence in the full year guidance for top line growth and margin expansion and our three-year cash targets.'
Dividends also remain on track for mid-year payout, at 14.3 pence per share. Despite this, the BAE share price took a tumble yesterday and continued to do so as markets opened on Thursday, 20 May, dropping 2% within the first hour of trading.
Why does uncertainty remain around the BAE share price?
One area of concern is the US Defense budget for 2022. Although US President Joe Biden suggested that the budget will remain relatively flat, at $715 billion, compared to $704 billion for the previous fiscal year, this has not been enough to soothe the markets.
The revised budget is unlikely to contain projections for the next five years, translating to more uncertainty for a company that is already in a beleaguered industry. Other issues facing the defence industry are also weighing against the BAE share price, with the rise of environmental, social and governance investing meaning that managers are increasingly excluding companies like BAE from ethical funds.
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