In latest many years, defence firms like BAE Methods (LSE:BA.) have been seen as ‘steady if unspectacular’ shares to purchase. The secure nature of arms spending made them nice firms to contemplate to present a portfolio some further metal.

However Russia’s invasion of Ukraine in 2022 has modified the complexion of this standard share sector. Buyers have been piling into defence shares as a part of a method to seek out the most well liked development shares.

BAE Methods has delivered double-digit earnings development over the previous couple of years. And Metropolis analysts predict this document to proceed, as may be seen beneath:

Making tracks

Naturally, dealer estimates are simply that and are steadily identified to overlook their targets. However recent buying and selling commentary immediately (7 Might) suggests BAE Methods is on course.

Celebrating what it described as “a powerful begin to 2025“, BAE stated “the areas through which we function are poised for greater defence spending“.

“We anticipate this to supply a sturdy set of additional alternatives throughout all our sectors“, it added.

Gross sales are rising as broader spending from NATO nations strikes greater. This consists of the UK — from the place the FTSE 100 agency generates 26% of gross sales — which has pledged to lift defence spending to 2.5% of GDP from 2027.

Accordingly, BAE’s spending closely to capitalise on this chance and ship sturdy development. New amenities, together with an explosives filling base in Wales and a brand new shipbuild meeting corridor in Glasgow, are set to open this summer season. It’s additionally creating greater than 2,400 apprentice, undergraduate and graduate roles this 12 months simply within the UK.

For 2025, the corporate affirmed steerage that gross sales will rise 7-9% 12 months on 12 months, and for underlying earnings per share to enhance between 8% and 10%.

US questions

But issues are removed from good for BAE Methods given uncertainty within the US. It faces the prospect of lowered spending Stateside because the Trump administration reduces his nation’s position as ‘the world’s policeman’. There’s additionally uncertainty associated to future tariffs and the affect this will likely have on prices.

The US is the corporate’s largest single market, so dispruption right here might be important at group stage. However on steadiness, I consider the corporate stays comparatively well-insulated from a number of the danger.

Aarin Chekrie, shares analyst at Hargreaves Lansdown, notes: “The overwhelming majority of kit that BAE delivers to its US clients is already produced in-country… which means [the company] shouldn’t be too affected by US tariffs as they at the moment stand.“

Ought to I purchase the shares?

So is the FTSE 100 firm a purchase then? Nicely, BAE Methods shares don’t come low cost, commanding a P/E ratio of 23.5 instances at present costs. Nevertheless, I believe it is a truthful reflection of its glorious development alternatives.

Rising geopolitical pressure means world arms spending ought to/might proceed to climb. And because of its experience throughout a spectrum of product areas — from fighter jets and submarines, to drones, missile methods and cyber safety — BAE’s nicely positioned to capitalise on this.

I’ll be trying to purchase BAE Methods shares once I subsequent have spare money to speculate.