In this article I am looking at why BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) provides excellent value given its improving earnings prospects.
Rock-bottom price too good to pass up
Make no mistake: BAE Systems is a genuine blue-chip stock market star, whose leading position across a throng of defence technologies gives it tremendous scale and makes it a go-to supplier for governments across the globe. And with a forward price to earnings (P/E) multiple of 10.8 for the current financial year, I believe that the firm currently provides stupendous value for money.
The result of lumpy contract orders and previous defence budget constraints is expected to translate into a 6% earnings decline this year, 
according to City analysts. But with a 2% increase pencilled in for next year, BAE Systems’ P/E multiple drops even further to 10.5, just above the watermark of 10 which represents tremendous bang for one’s buck.
The arms builders’ earnings outlook has advanced considerably in recent times, with improving financial conditions in key Western economies likely to significantly bolster its order book. The company remains a critical hardware provider for the US and UK militaries, exemplified by the recent launch of HMS Queen Elizabeth — Britain’s largest ever aircraft carrier — of which BAE Systems played an orchestral part in the design and construction process.
Meanwhile, the firm is also working hard to latch onto markets which it believes should deliver stunning growth in future years. Indeed, the business announced in June plans to merge its already-extensive operations in Saudi Arabia with those of its partner in the country, Riyadh Wings. The new entity, in which BAE Systems will hold a 51% controlling stake, will boost the firm’s growth opportunities in the training, electronics and information technology sectors.
In addition to its position as an excellently-priced earnings pick, BAE Systems also offers terrific value for those seeking delicious dividend prospects — the defence specialist is anticipated to lift last year’s 20.1p per share payout to 20.6p this year, and a further increase to 21.2p is predicted for next year.
Such forecasts create massive yields of 4.8% and 4.9% for 2014 and 2015 correspondingly, flying past a forward average of 3.2% for the FTSE 100 and surpassing a respective reading of 2.5% for the complete aerospace and defence sector. In my opinion BAE Systems is an exceptional pick for those on the lookout for great-value growth and income stocks.