BAE systems (LSE:BA.) Shares are balmy right now. Further powerful gains today (February 18) mean the defense giant’s value is up an impressive 57% over a 12-month horizon.

For comparison: someone who bought 101 shares of the company FTSE100 the business a year ago would now have a capital gain of £766. This number of shares is now worth £2,116, up from £1,350 12 months ago. That’s not all – once dividends were added, our investor would have achieved a total return of £811.

Past performance is not always a reliable indicator of future returns. However, after today’s exhilarating stock updates, I am confident that the BAE Systems share price can continue to rise. Want to know why?

Forecasts thwarted

Global defense budgets are growing rapidly as the geopolitical order shakes. Concerns about the expansionism of Russia and China are driving Western spending to levels not seen since the end of the Cold War. In Europe, budgets are also rising rapidly amid signs of a reduction in US security guarantees.

As one of the largest defense companies in the world, BAE Systems is not only prospering. He is outperforming at a rate that continues to surprise expectations, even his own. On Wednesday it announced underlying earnings before interest and tax (EBIT) of £2.9 billion. This is an raise of 12% and better than the company’s expectations (an raise of 9%-11%).

Sales rose 10% to a record £30.7 billion, topping forecasts, with growth recorded across all divisions. The company’s order backlog rose to £83.6 billion in December, a year-on-year raise of £5.8 billion.

However, can BAE Systems maintain its development momentum? He is confident of further progress and forecasts for 2026:

• Sales raise from 7% to 9%.
• Basic EBIT raise from 9% to 11%.

However, some analysts believe that the company may again be downplaying its excellent prospects. Analyst Aarin Chiekrie of Hargreaves Lansdown says that “guidance for 2026 appears conservative, especially given the group’s order fulfillment track record over the past few years. This means there’s certainly a possibility that the guidance will get higher as the year goes on“.

If that happens, BAE’s share price could get a large boost of jet fuel over the next year.

Is BAE Systems stock worth buying?

So, could the company’s current high valuation be a problem? Its forward price-to-earnings (P/E) ratio is currently 25.8 times.

Chris Beauchamp, analyst at IG commented that “the share price has become more volatile recently, which means it has passed a period of likely undervaluation and has entered a time where the company will need to prove it can meet current lofty expectations“.

If BAE Systems fails this test, it could lead to a acute decline in its share price. There are very real challenges that could make this a reality, from persistent supply chain problems to competitive pressures that could result in the loss of key contracts.

Overall, I think FTSE is a great stock to consider today. In my opinion, BAE’s long history of outperformance and powerful prospects mean that BAE shares deserve a higher valuation. I think they may continue to raise after today’s update.