The American broker reckons US budgets are likely to be 5% lower 2022 through to 2025 when compared with 2021.
According to its analysts, BAE is “strongly placed” to withstand the headwinds.
They predict underlying earnings (EBIT) will be broadly flat with the with the maker of the Typhoon jet fighter receiving “good fundamental support” from a free cash flow yield of around 7%.
Jefferies’ number crunchers said that if BAE is “roughly handled by adverse sentiment, a powerful backstop would be a spin-off of Electronic Systems”.
The GPS business is estimated to be worth GBP10bn, or half the company’s enterprise value.
Lifting its target price to 600p a share Jefferies upgraded its recommendation to ‘buy’ from ‘hold’.
The shares, down a fifth from their pre-pandemic peak, were off 1.4% at 524p in afternoon trade.