BAE Systems (LSE: BA.) has secured a new wave of U.S. defense contracts, including an ultra-compact RF terminal project for the U.S. Space Force and fresh Amphibious Combat Vehicle orders.
The contract wins come during a volatile period for the defense giant, with its 30-day share price return declining 2.05% over the most recent stretch.
Despite the short-term weakness, BAE Systems has posted a year-to-date share price gain of 13.08%, alongside a one-year total shareholder return of 10.28%, keeping the longer-term trend firmly intact.
The most widely followed valuation narrative on the stock places a fair value estimate of £23.23 per share against a last closing price of £19.84, implying the stock may be approximately 14.6% undervalued.
That discount, according to analysts tracking the name, is closely tied to expectations of how future defense demand will feed through BAE Systems’ growing order book.
The company’s order backlog has surged to £75 billion, supported by a pipeline of opportunities driven by escalating defense spending commitments across NATO, the U.S., U.K., Europe, and the Indo-Pacific region.
Key national targets underpinning that demand include the U.K. aiming to spend 3.5% of GDP on defense by 2035 and Japan committing to double its defense spending by 2027, both of which favor sustained procurement activity.
These multi-year spending commitments are expected to provide meaningful revenue visibility for BAE Systems and support topline performance well into the next decade.
However, the investment case is not without risks, as delays to major government programs or ESG-driven pressure reducing investor appetite for defense contractors could alter the outlook considerably.
The combination of a strengthening contract pipeline, an expanding £75 billion backlog, and a potential valuation gap positions BAE Systems as a closely watched name among defense-sector investors heading into the second half of 2026.
