Home Investing BAE Systems share price faces stiff resistance ahead of earnings

BAE Systems share price faces stiff resistance ahead of earnings


BAE Systems (LON: BA.) pulled back recently investors worry about the rising cost of doing business even as demand increases. The stock is trading at 769p, which is about 9.50% below the highest level this year. 

Rising costs are a challenge 

BAE Systems is a leading defense company headquartered in the UK. The firm manufactures leading military products across air, marine, land, and cyber areas. 

Some of its key products are combat vehicles, electronic systems, typhoons, tornadoes, and complex warships among others. BAE has a market cap of over £24 billion and generates over £19.5 billion in revenue. 

BAE Systems and other defense contractors have done well in the past few months as investors react to the rising defense spending in the UK, US, and other countries following Russia’s invasion of Ukraine. Most NATO countries have committed to spend at least 2% of their total budget in the coming months. As a result, the BAE Systems share price soared to an all-time high of 847p.

Recently, however, there have been concerns about the rising cost of doing business. For one, the commodities it needs to build its products like titanium, steel, and aluminum have risen sharply. As such, analysts expect that the firm will see a sharp decline in profitability. Indeed, Raytheon Technologies reported weak earnings this month. 

BAE Systems will publish its half-year results this week. Analysts expect that the company’s revenue rose to £10.46 billion while the underlying EBIT rose to over £1 billion. Also, analysts expect that the free cash flow rose to more than £127 million. 

For the full year, analysts expect that the company’s sales will hit £22.4 billion while its free cash flow will hit £1.19 billion. 

BAE Systems share price forecast 

The four-hour chart shows that the BAE share price has been in a strong downward trend in the past few days. The stock managed to move below the lower side of the ascending channel that is shown in black. 

BAE Systems shares have also moved below the 25-day and 50-day moving averages while the Relative Strength Index has moved below the oversold level. It has also formed a head and shoulders pattern. 

Therefore, the stock will likely continue falling as sellers target the next key support at 750p. A move above the resistance level at 780p will invalidate the bearish view. 

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