Strong Backlog Orders Keep BAE Systems Bullish
The underlying weakness in the Pound boosted the exports from the UK. This is evident from the July’s trade deficit, which narrowed by £1.1 billion to £4.5 billion. The upwardly revised second-quarter GDP growth of 0.7% also indicates the positive influence of the weak Pound on the results of large companies. One such company which continues to be positively impacted by the weak Pound is the defense, security, and aerospace company BAE Systems Plc (LON:BA). Correspondingly, the share price of BAE Systems continues to consolidate near the 12-month high of 557.53. For the reasons discussed below, we forecast further uptrend in the share price.
The London-based manufacturer of transponders for the US army and navy reported H1 2016 sales of £8.28 billion, up from £8.00 billion in the corresponding period of 2015. The semi-annual revenue estimates of analysts were £8.71 billion.
The Eurofighter Typhoon manufacturer recorded fiscal 2016 first-half profit of £418 million or £0.174 per share, compared to £398 million or £0.171 per share in the first-half of 2015.
In July, BAE Systems entered into a ten year partnership agreement with the UK Ministry of Defense to support the Typhoon fleet. The contract is worth £2.1 billion. Furthermore, the company also signed a £300 million contract, valid until 2020, to support the fleet of Hawk jet trainer aircraft. The BAE Systems was also awarded an extension to the Type 26 Frigate demonstration phase contract. The deal is worth £472 million.
The company also received £183 million contract from the UK Ministry of Defense to provide three gun systems. Outside the UK border, BAE Systems received a £111 million contract from the Japanese Ministry of Defense for the supply of assault amphibious vehicles. Overall, the company had an order backlog of £36.3 billion at the end of the first-half of fiscal 2016. The analysts have given a median price target of 580 for the stock. Thus, it is better to remain long in the stock.
The stock of BAE Systems has a strong support at 538. The ascending stochastic oscillator confirms the underlying bullishness in the stock. The price chart indicates that there is little resistance to the stock on the upside. Thus, we can expect the share price to increase further and reach the next resistance level of 550.
A speculator can consider investing in a one touch call option to gain from the probable rise in the price of the stock. A strike price of about 545 would be ideal for the recommended trade. Similarly, the binary trader should look out for a contract which expires in the second-week of November.
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