BAE Systems shares sold off on Thursday in response to cautious guidance from management about the outlook for 2014 — especially in the U.S. defense market. However, there are multiple reasons to suspect that investor doubts are overdone, because BAE has a special relationship with the Pentagon and supplies crucial items — both goods and services — to the joint force. With less that 10% of the sprawling U.S. defense market, BAE has plenty of room to grow and it has installed a management team at its U.S. business that knows how to take market share while sustaining strong margins. Management was right to warn investors about the challenges that may lie ahead, but with the budget environment stabilizing and the company well-positioned, this week’s sell-off is probably no more than a passing speed-bump on the road to continued financial success. I have written a commentary for Forbes here.
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