Well positioned portfolio: One key takeaway from the major programmes and markets presentation last week was that the five-year sales outlooks are either positive or stable for key programmes that comprised almost two-thirds of 2019 Group revenue. A £46bn order backlog, incumbent positions on key programmes, opportunities on aircraft sales and support, electronic systems and land vehicles, as well as some short-cycle exposure, support the outlook. Operational improvement should now drive margins and free cash generation. Higher FY20 earnings: The recent trading update indicated that performance has remained resilient and in line with expectations for a strong second half. Guidance for FY20 sales and cashflow held firm, with earnings expected to be higher than previously guided via good operational performance and a lower expected tax rate, offsetting an adverse FX impact. US outlook: US Defence Primes have begun to re-rate from their pre-election discount of c.25% vs the start of the year. While we await FY21 budget approval, DoD outlays grew +12% YoY. BAE’s US portfolio remains well aligned to spending priorities and growth areas. Estimate changes: We reflect updated guidance and adjust for FX. As a result, FY20E adj. (FD) EPS increases by 6%, to 44.6p. FY21E/22E are unchanged at this point, as is cumulative three-year free cash flow of c.£3.5bn. Discount: BAE is trading at a c.38% discount to US Defence Primes, near the ten-year trough. A CY21E P/E of 9.5x, falling to 8.9x, appears attractive while a CY21E dividend yield of 5% and FCF yield of 7% are difficult to ignore. Best Ideas: BAE is presenting at our Best Ideas Conference today.