The BAE Systems (LSE: BA.) share price is down 17% in a month after Russian president Vladimir Putin hinted at a possible end to the war in Ukraine.

The news has rattled investors but the business still looks solid, with earnings up 6.3% a year over the past five years — ahead of many UK blue-chips.

Analyst models now suggest earnings could grow by around 12.13% annually from here. If that proves even roughly right, is the latest pullback a chance to buy into a long-term defence heavyweight at 25% below fair value?

A bullish outlook

Under the bonnet, BAE’s still moving in the right direction. In the latest results, it boasted the following achievements:

• Revenue up 7.69% year on year, from £26.31bn to £28.34bn.
• Earnings up 8.33%, from 69p to 75p per share.
• Management’s guided for 7%-9% sales growth.
• A record order backlog and strong demand across air, maritime and electronics.

If the top line keeps growing while margins hold, today’s earnings forecasts may yet prove conservative.

Naturally, the ongoing conflict in Ukraine is a key driver of demand. After years of underinvestment, NATO has boosted spending with European defence budgets largely increasing across the board.

A recent summit saw an agreement towards spending up to 3.5% of GDP on core defence and a further 1.5% on resilience projects by 2035.

As BAE chief executive Charles Woodburn put it: “The trend is definitely upward” for defence spending.

But while that supports long-term demand for BAE, there’s also a key challenge.

Negative sentiment

As war rages on, there’s an understandable increase in negative sentiment around defence spending. We’re seeing increasing pressure from activists to reduce spending on arms exports and push for peaceful de-escalation.

That would be an ideal outcome for all involved, even if it means short losses. But is it enough to prompt governments to trim defence budgets sooner than expected — even after recent NATO pledges?

If so, BAE’s at risk of another bout of volatile price swings.

The valuation’s also questionable. While the stock’s estimated to be 25% below fair value using a discounted cash flow model, its forward price-to-earnings (P/E) ratio sits around 22.14. That’s not exactly ‘cheap’ for a mature FTSE 100 name.

So is it really the value opportunity it appears to be — and do the potential benefits outweigh the risks?

My verdict?

From a purely financial point of view, BAE still looks in good shape. In that sense, it’s still worth considering for long‑term investors who support defence spending despite the ethical quagmire.

Structural drivers like higher NATO budgets, record order books and next‑generation programmes in naval and space systems point to decent earnings visibility over the next decade.

But the shares aren’t a fire sale, and any reversal in geopolitical tensions or public support for defence spending could hit sentiment hard. For value‑minded investors, this pullback looks more like a potentially attractive entry point than a screaming bargain.

The key question’s simple: are you personally comfortable owning a defence stock that could stay politically controversial, even if the cash flows keep marching higher?

Mark Hartley has positions in BAE Systems.