Citi reiterates 'buy' rating on BAE Systems

(Sharecast News) - Citi reiterated its 'buy' recommendation on BAE Systems on Monday after the shares slumped on Friday on the back of a downgrade by Bank of America Merrill Lynch. Citi noted the shares fell around 4% "following a competitor downgrade that, we understand, highlights the risk to the US Defence budget following the creation of DOGE (Department of Government Efficiency)".

Citi said that while it understands these concerns, BAE Systems has similar expected profit growth to US peers, better free cash flow conversion, less exposure to the US DoD - therefore less risk from DOGE - and a much lower valuation, at 14.4x 2024 EV/EBIT versus the average 17.7x.

"We therefore conclude BAE Systems is a more attractive, lower risk investment and reiterate our buy recommendation," it said.

On Friday, BofA ML downgraded its stance on the shares to 'underperform' from 'neutral', citing the risk of potential US government spending cuts overseen by Elon Musk.