Engineering firms had a tough time during the recession, but one that has come storming back and is on for a real winning 2013 is BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US).
At 443p today, BAE shares have soared 32% since the start of January, more than doubling the FTSE 100’s relatively puny 14% gain.
Growth and dividends
BAE looks pretty good on the dividend front. too, with a full-year yield of 4.5% forecast, nicely beating the FTSE average of 3.1%. And if the current consensus turns out to be accurate, it will be more than twice covered by earnings.
And even after a such a strong price rise, BAE’s shares are still on a forward price-to-earnings (P/E) ratio of only 10.5 based on full-year forecasts, and that’s a fair bit below the FTSE’s long-term average of around 14.
So do we have a share with some growth still to come, and with nice income thrown in too? I think so, and that’s why I added BAE to the Fool’s Beginners’ Portfolio in October last year — and we’re up 33% since then, even ignoring dividends.
The crowds were wrong
In fact, at the time I thought BAE was a great example of a very common phenomenon.
It was a company in a sector that is having a hard time — in this case defence and aerospace was expected to suffer from recession-led cutbacks — and so investors sell it off, but too strongly and the price falls way too far.
A P/E of around 7 or 8 in 2011-12 was stupidly cheap for a company that clearly had a good long-term future ahead of it.
Anyway, what are the prospects for the full-year?
Looking good
Well, in its third-quarter announcement on 10 October, BAE told us that trading was consistent with its half-time expectations and that its outlook remained unchanged — the key Salam project could lead to an impact on earnings per share (EPS) of 6-7p if it isn’t concluded buy year-end, but a satisfactory completion is anticipated.
At the end of the first half, reported in August, BAE saw a modest 1% rise in sales to £8,448m and a 4% drop in underlying EPS. But the firm still lifted its interim dividend by 2.5% to 8p per share, and told us it expects to record a double-digit rise in EPS when the year ends in December — and that’s slightly better than the analysts’ consensus.
What else is there to say?
Full-year results should be out on 20 February, and by then I’m sure we’ll have had a winning year from BAE.