War Brings Boom to Elbit Systems
Written by: Zack Miller | May 21, 2007
BusinessWeek wrote last week of the growing demand for Israeli defense technology. Worldwide defense (war?) spending reached over $1 trillion (nearly half of that was from the US).
Israel, for better and for worse, has learned how to deal with a war setting and has quickly become the world’s fourth largest arms supplier (after US, Russia, and France). BusinessWeek cites that military exports from Israel rose 20% year-over-year, reaching $4.2B and interestingly, India, not the US, appears to be the largest percentage of that business. The article cites Indian government sources that show in 2006 that India bought $1.5B worth of defense equipment from Israel.
This bodes really well for Elbit Systems (ESLT), an Israeli defense firm with an almost $2 billion market cap. ESLT manufactures all the cool stuff: in addition to integrated communication networks, Elbit also sells helmet mounted systems, unmanned air vehicles (think James Bond), and electronic warfare and signal intelligence systems.
Cool stuff: the stock is up 35% on the year back of
- strong organic growth (Q1 revenues were up 20% over last year). Gross margins were in line but would have been even stronger if not for the strength in the shekel (accounting for increased Israeli labor costs). See last week’s article on the strength in the Israeli shekel versus the US dollar.
- a string of smart acquisitions (including Elisra) which bode well for strong synergies in the years to come.
All this prompted a leading Israeli analyst, Shaul Eyal at CIBC, to raise his price target last week from $36 to $52. UBS also jumped on the bandwagon an upgraded the stock from Neutral to Buy based on a forecast of 2007 EPS of $3.00 (up from $2.50)
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