The shares prices of both BAE Systems (LSE:BA.) and Rolls-Royce (LSE:RR) have performed tremendously over the past year. BAE’s is up 48.6% while Rolls-Royce has more than doubled (+109%).
For reference, the FTSE 100 has risen by around 20%.
But what about the next 12 months? Where might each land by the end of 2026? Let’s see what the experts think.
Latest targets
Before turning to the latest broker forecasts, it’s important to remember that they could turn out to be wrong. Therefore, I would never use them alone to form the basis of an investment.
That said, they can offer useful input, in my opinion. If there’s a significant difference between the target and current share price, that’s often worth exploring a bit further. There might be a mispricing opportunity.
When it comes to blue-chip FTSE 100 stocks like Rolls-Royce and BAE, however, the two figures rarely diverge that much. These are well-established companies that have deep analyst coverage.
Right now, 17 analysts offering one-year price forecasts for Rolls-Royce have an average target of 1,224p. This is only 5.8% above the current share price.
Meanwhile, the range is quite narrow, with the most bullish target 24.5% higher (1,440p) and the lowest 900p (-22.2%).
For BAE, 18 analysts have an average price target of 2,124p, which is 14.9% above than the current level. The loftiest target is 35.2% higher at 2,500p.
Based on this, the BAE share price might offer more potential gains over the next year.
Dividend yield
Of course, dividends can also play an important part when it comes to returns.
Rolls-Royce, which not long ago reinstated its dividend, is expected to pay out 10.9p per share next year. However, this results in a tiny 0.9% forward-looking dividend yield.
Meanwhile, BAE is expected to dish out 39.9p per share in 2026, translating into a forward yield of 2.1%.
While neither offers particularly exciting income, BAE wins on this score too.
Valuation
What about valuation? Well, BAE stock is trading at 22 times next year’s forecast earnings. For Rolls-Royce that figure is 35.
However, it should be noted that the engine maker now has better margins than BAE and is expected to grow profits a bit faster between 2026 and 2028.
Nevertheless, BAE does look better value to me right now, especially when dividends are factored in.
Risks
Both companies face challenges related to global supply chains, which could negatively impact manufacturing. They also have had issues recruiting skilled manufacturing talent.
Rolls-Royce’s business is more diversified, stretching across civil aviation, defence, and industrial power/energy. However, it’s much more vulnerable to global events that hit travel demand, including another pandemic or a major war.
BAE is at the mercy of defence spending, but this looks almost certain to stay elevated for many years given the sorry state of geopolitics.
Stepping back, I would say that BAE is probably the less risky of the two. But Rolls-Royce stock could have more explosive potential if it continues exceeding its financial targets.
Both firms will deliver Q3 trading updates next week.
Verdict
I own hold stocks in my portfolio and expect them to generate solid long-term returns. So I reckon they might still be worth considering.
But on balance, I’d say BAE is the more attractive right now.
