BAE Systems (LSE:BA.) shares remain red hot right now. Further strong gains today (18 February) mean the defence giant’s risen an impressive 57% in value over a 12-month horizon.

To put that into context, someone who bought 101 shares in the FTSE 100 business a year ago would now be sitting on a £766 capital gain. The value of that number of shares is now worth £2,116, up from £1,350 12 months ago. That’s not all — with dividends added in, our investor would have realised an £811 total return.

Past performance isn’t always a reliable guide to future returns. But following today’s blistering trading update, I’m confident BAE Systems’ share price can keep on rising. Want to know why?

Forecasts smashed

Global defence budgets are rocketing as the geopolitical order is shaken up. Worries over Russian and Chinese expansionism is driving Western spending to levels not seen since the end of the Cold War. In Europe, too, budgets are soaring on signs of reduced security guarantees from the US.

As one of the world’s biggest defence companies, BAE Systems isn’t just thriving. It’s outperforming at a pace that continues to confound expectations, even its own. On Wednesday, it announced underlying earnings before interest and tax (EBIT) of £2.9bn. This was up 12%, and beat the company’s own guidance (a rise of 9%-11%).

Sales leapt 10% to a record £30.7bn, at the top end of forecasts, with growth reported across all divisions. And the firm’s order backlog swelled to £83.6bn as of December, a year-on-year increase of £5.8bn.

Can BAE Systems keep the momentum going, though? It’s confident of further progress, and for 2026 has forecast:

• Sales growth of 7% to 9%.
• Underlying EBIT growth of 9% to 11%.

Some analysts, though, think the business may again be downplaying its excellent prospects. Analyst Aarin Chiekrie of Hargreaves Lansdown says that “guidance for 2026 looks to be on the conservative side, especially given the group’s track record of delivery over the past few years. That means there’s certainly scope for guidance to get nudged higher as the year progresses“.

If so, BAE’s share price could receive a large dose of jet fuel over the next year.

Are BAE Systems shares a Buy?

That said, could the company’s huge valuation right now be a problem? Its forward price-to-earnings (P/E) ratio now sits at 25.8 times.

Chris Beauchamp, analyst at IG commented that “the share price has become choppier of late, a sign that the shares have moved past their arguably-undervalued period, and into a time when the company will have to prove it can meet the current lofty expectations“.

If BAE Systems fails this test, it could lead to a sharp decline in its share price. And there are very real challenges that could make this reality, from enduring supply chain issues to competitive pressures that could see it lose out on key contracts.

On balance, though, I feel the FTSE firm is a great stock to consider today. In my view, its long record of outperformance and bright outlook means BAE shares deserve a premium valuation. On the back of today’s update, I think they can continue to surge.