BAE Systems Shares Are Up 23% in 2026. Is This FTSE 100 Defense Stock a Buy?

Why It Matters

The earnings beat and dividend hike reinforce BAE’s cash‑flow stability, making it a key beneficiary of rising defence budgets, while policy uncertainty could cap upside. Investors watch the stock as a bellwether for UK defence spending trends.

Key Takeaways

• Order book grew £2.7bn versus 2024
• Revenue up 8% YoY, operating profit up 9%
• Dividend increased 10% to 36p per share
• Shares up 23% YTD, 56% versus last year
• Valuation sensitive to UK defence spending decisions

Pulse Analysis

Global security concerns have pushed governments to prioritize defence spending, and the United Kingdom is no exception. With the new administration targeting a 3% of GDP defence budget ahead of schedule, contractors like BAE Systems stand to benefit from a wave of procurement contracts across air, land, sea, and cyber domains. This macro backdrop not only fuels order inflows but also positions BAE as a strategic partner in Europe’s multi‑decade re‑armament effort, enhancing its sovereign‑capability status and long‑term revenue visibility.

BAE’s latest financials underscore the company’s operational resilience. An 8% rise in revenue and a 9% lift in operating profit reflect both higher contract values and improved execution efficiency. The £2.7 bn expansion of the order book provides a solid pipeline that should sustain earnings growth as backlogs convert to deliveries. Meanwhile, a 10% dividend increase to 36p per share signals confidence in cash generation, appealing to income‑focused investors and reinforcing the stock’s total‑return profile.

Despite the bullish fundamentals, investors must weigh political risk. The stock’s valuation is already premium, and any slowdown in UK defence allocations—exemplified by Treasury push‑back on re‑armament rhetoric—could pressure share price. Nonetheless, BAE’s diversified product mix, entrenched relationships with the Royal Navy, Army, and RAF, and its sizeable market cap of roughly £61 bn provide a defensive moat. For analysts, the key question remains whether the company can maintain growth momentum without sacrificing valuation discipline.

BAE Systems Shares Are Up 23% in 2026. Is This FTSE 100 Defense Stock a Buy?

Ollie Smith · 19 Feb 2026

Key Takeaways

• BAE Systems’ order book continues to expand, strengthening long‑term revenue visibility across its defence programmes.

• The FTSE 100 contractor increased its dividend 10 % to 36p.

• With the share price at an all‑time high, valuation remains sensitive to UK government defence spending.

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Ollie Smith: With global conflict ever present and governments pledging to spend yet more on defence, BAE Systems BA. is already one of the FTSE 100’s top‑performing stocks in 2026. Indeed, it has just delivered a strong set of results for 2025.

Revenue is up 8 % year‑on‑year. Operating profits are up 9 %. BAE’s order book is £2.7 bn larger than 2024 and, for income seekers, dividend per share is up 10 % to 36p. On the FTSE 100, BAE Systems is playing its part in the index’s fresh record highs, with this key defence and aerospace stock rising 23 % year‑to‑date, positioning it for its best annual gain since last year, when it climbed 49 %. BAE shares are up 56 % on this time last year.

So what’s handing this multinational arms manufacturer momentum right now?

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What’s Driving the BAE Systems Share‑Price Rally?

BAE Systems has a portfolio of defence capabilities ranging from aircraft, weapons, munitions, and ships to submarines and cyber. The Royal Navy relies on BAE for its frigates. The British Army relies on BAE for small and large‑calibre munitions and Challenger 3 tank upgrades, while in the air the RAF’s Typhoon fast jets were produced by BAE in partnership with other European nations.

As defence chiefs declare that the cost of peace is rising, so too is BAE’s stock, which has a market capitalisation of nearly £61 bn. On 16 Feb, when UK Prime Minister Keir Starmer said he wanted to accelerate government efforts to reach defence spending of 3 % of GDP a few years earlier than planned, BAE stock rose another 2 %. But it’s not just sentiment. BAE’s results are solid, and Morningstar equity analyst Loredana Muharremi says the company is securing sovereign‑capability status for what she calls a “multi‑decade” European re‑armament programme. Does that make BAE stock a buy?

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Should I Buy BAE Systems Stock After Earnings?

At just over £21, BAE stock is trading at an all‑time high. Morningstar’s take on its latest results is still pending, but Muharremi highlights the likelihood that BAE’s order book will continue to expand as backlogs clear and orders turn to deliveries.

In the meantime, shares are still sensitive to an apparent political dispute over UK government defence spending, with reports suggesting Treasury minister Rachel Reeves is pushing back against Starmer’s re‑armament rhetoric. There’s no doubt investors should focus on the facts as they stand. For now, however, the fact is BAE stock is performing brilliantly.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ollie Smith – Senior Editor, Morningstar UK

Ollie Smith is a senior editor for Morningstar UK.

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Securities Mentioned

• BAE Systems PLC GBX 2,165.00 (BA.) + GBX 55.00 (2.61 %)

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