Source: Sharecast
The bank said BAE is unlikely to beat FY25 results expectations due to disappointing Maritime margins (6.5% versus 8% guided), despite a better performance in Air and Cyber & Intelligence.
"While we expect free cash flow to hit £1.5bn, it remains below consensus," DB said. "FY26 guidance anticipates 7-8% organic growth with only modest EBIT margin improvement, as Maritime continues to underperform."
Deutsche said that growing affordability concerns in both the UK and US markets, alongside a blurred US environment, had led it to revise its price target. "The limited upside drives us to move from a buy to hold rating," it said.
In the same research note, Deutsche lifted its price target on ‘buy’ rated Rolls-Royce to 1,325p from 1,220p to reflect a sector re-rating.
"Despite persistent supply chain constraints impacting Aerospace, Rolls-Royce should demonstrate solid performance in Aerospace in 2025-2028," it said. "Power Systems is experiencing strong growth driven by data centres and defence contracts, with potential for significant upside as of 2025."
DB said that while Small Modular Reactor (SMR) programmes show promise across multiple regions, their concretisation is still pending.
"The company's confidence in future cash flow is underscored by an ongoing and expanding share buyback programme, with our expectation of seeing it exceed £1bn in 2026."
Deutsche Bank said its preferred stocks in the sector this year are Airbus, Safran, MTU Aero Engines and Rheinmetall.
JPMorgan trimmed its price target on educational publisher Pearson to 1,420p from 1,440p, implying 30% upside potential and a 2027 price-to-earnings of around 17x.
The bank noted that Pearson’s shares are down 15% over the past year, with Pearson de-rating from 16x to circa 14.5x 2026 estimated earnings.
"Performance was constrained by growth being Q4 weighted and broader AI concerns," it said. "We believe that AI concerns are misplaced; indeed, Pearson can embed AI into its verified content and is one of the few companies that can benefit from AI workplace disruption.
"Growth should accelerate strongly in Q425 to circa 8%, laying the foundation for above guidance growth over the first 9 months of 2026E."
JPM said this should increase confidence in double-digit mid-term earnings per share growth, which would warrant a re-rating. It said Pearson, rated ‘overweight’, is one of its key picks for 2026 along with Relx, UMG and Publicis.
Citi said that JD Sports’ agreement with digital commerce tech firm Commertools, announced a day earlier, was a "small positive".
JD Sports said on Monday that the deal would enable customers to make one-click purchases on AI platforms including Copilot, Gemini and ChatGPT.
Citi noted that rollout will start in the US and begin with Copilot before extending to other LLMs.
"Indeed, JD's statement mentions research from 2025 by Adobe Express in the US on 5,000 consumers, which found ‘60% of those surveyed used AI as part of their shopping journeys’," Citi said.
"Currently circa 40% of JD's sales are in the US and at August 25, it had 2,529 NAM stores (including JD, Hibbett, Shoe Palace and DTLR)."
Citi said the deal was a small positive, "as it highlights a proactive approach to capturing traffic/audiences from LLMs and we believe there could be some initial advantages to being an early mover".
