I’ve lengthy argued that Babcock Worldwide (LSE:BAB) shares have been unjustly neglected as traders have piled into business friends like BAE Methods. However the FTSE 250 share is having its second within the solar right this moment (6 February) after releasing one other sturdy market replace.

At 500p per share, Babcock’s share price is presently up 10.4% in Thursday buying and selling. It’s been pushed by a robust Q3 assertion and upgrades to earnings forecasts.

And I consider the defence big has a lot additional to go. Right here’s why.

Forecasts bumped up

Babcock supplies assist, engineering and coaching companies to armed forces mainly within the UK, Australia and South Africa.

It additionally supplies companies for the civil market. That features constructing nuclear energy vegetation and cargo dealing with methods for industrial shipyards and shipowners.

Proper now, it’s on a roll throughout each side of the enterprise.

On Thursday, it mentioned a robust H1 “continued throughout the third quarter of the year,” including that “the preliminary view of performance in the month of January is also encouraging.”

A majority of income for the monetary 12 months (to March 2025) is underneath contract. And having reviewed its supply forecasts, it “expects both revenue and underlying operating profit to exceed the top end of the range of analyst expectations.”

Full-year gross sales of £4.9bn are anticipated. Underlying working revenue is tipped on the larger finish of between £327.1m and £339.7m.

Civil and defence energy

Babcock’s current success is thanks mainly to robust buying and selling at its Nuclear and Marine divisions.

At Nuclear, it mentioned “growth is driven by increased new–build and decommissioning work in civil nuclear, as well as increased submarine support activity and higher than originally expected infrastructure revenues.”

Marine progress is being boosted by “higher LGE [liquified gas equipment] volumes as well as the ramp-up of the Skynet programme.” It took over the operations and administration of Skynet — the UK’s army satellite tv for pc communications system — final March.

Sturdy outlook

Right now’s replace underlines the advantages of Babcock’s big selection of companies and its wonderful file of execution. In addition to lowering reliance on one sector, its presence in civil and defence markets supplies the agency with distinctive progress alternatives.

It’s benefitting from hovering arms spending throughout the globe. It is a development that appears set to proceed because the geopolitical panorama turns into extra fractured and new risks come up.

Roughly three-quarters of its portfolio is geared in direction of defence functions. In the meantime on the civil aspect, I’m anticipating robust demand for its nuclear companies to proceed because the UK switches away from fossil fuels.

Metropolis analysts are assured too. They assume the corporate will comply with a 42% earnings rise this monetary 12 months with will increase of 13% and 10% in fiscal 2026 and 2027, respectively.

After current momentum, I wouldn’t be shocked to see these short-to-medium time period forecasts upgraded both.

A FTSE 250 cut price

Regardless of right this moment’s rise, Babcock shares nonetheless look dust low-cost on paper. A sub-1 price-to-earnings progress (PEG) ratio of 0.4 leaves lots extra scope for my part for extra share price features.

Dangers right here embrace provide chain issues throughout the defence sector and intense market competitors. However on stability, I feel it appears in nice form to maintain rising. So I consider it’s value critical consideration from savvy share traders.