Was BAE Systems plc's (LON:BA.) Earnings Growth Better Than The Industry's?

After looking at BAE Systems plc's (LSE:BA.) latest earnings announcement (30 June 2017), I found it useful to revisit the company's performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for BAE Systems

How Well Did BA. Perform?

To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to analyze various companies in a uniform manner using new information. For BAE Systems, its latest earnings (trailing twelve month) is £1,060.0M, which compared to last year’s level, has jumped up by 13.25%. Given that these figures are relatively short-term, I’ve estimated an annualized five-year figure for BA.'s earnings, which stands at £811.9M. This shows that, on average, BAE Systems has been able to gradually grow its net income over the past few years as well.

What's the driver of this growth? Let's see whether it is merely because of an industry uplift, or if BAE Systems has experienced some company-specific growth. Even though both top-line and bottom-line growth rates in the last few years, were, on average, negative, earnings were more so. While this has led to a margin contraction, it has softened BAE Systems's earnings contraction. Scanning growth from a sector-level, the UK aerospace and defense industry has been growing its average earnings by double-digit 30.88% in the prior twelve months, and a flatter -0.37% over the previous few years. This means that, in the recent industry expansion, BAE Systems has not been able to leverage it as much as its average peer.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research BAE Systems to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for BA.’s future growth? Take a look at our free research report of analyst consensus for BA.’s outlook.

2. Financial Health: Is BA.’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2017. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.