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Elbit Soars as Deals Signal New Markets Growth: Israel Overnight

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Oct. 3 (Bloomberg) -- Elbit Systems Ltd. climbed the most in a year in New York as Israel’s biggest non-government defense technology developer secures customers outside of its traditional markets in the U.S. and Europe.

American depositary receipts of Haifa, Israel-based Elbit surged 5.5 percent yesterday to the highest level since April 30, and traded at the smallest discount to the Standard & Poor’s 500 Aerospace & Defense Index in almost five months. The company led gains on the Bloomberg Israel-US 25 Index of the largest U.S.-traded Israeli stocks, which rose 1.5 percent to 87.12. The shares declined 2.5 percent in Tel Aviv today. Given Imaging Ltd. jumped to a two-month high in New York yesterday.

Elbit is rebounding from a six-year low reached on Aug. 28 as it diversifies away from the U.S. and Europe, where defense spending is faltering amid lackluster economic growth. The company, which got 50 percent of revenue from the U.S. and Europe last year, said yesterday that it will supply technology to the Royal Australian Navy and announced on Sept. 23 that it will set up a training center for a Latin American air force.

“Even though these recent contracts are not big, the company wants to show investors that they are progressing in entering new markets,” Guil Bashan, an analyst at Israel Brokerage & Investments Ltd. which rates Elbit buy, said by phone from Tel Aviv yesterday. “Investors are recognizing that they will prevail over time in creating value from entering these markets.”

Israel’s benchmark TA-25 Index, which trades at 11.7 times estimated earnings, gained 1.1 percent today, increasing its advance this year to 13 percent.

Defense Slowdown

Elbit trades at 9.2 times estimated earnings, compared with an average multiple of 12.7 for the S&P Aerospace & Defense Index, which includes companies like Northrop Grumman Corp. and Raytheon Co. That’s the least discount since May 15.

“We do see, and it’s clear to everybody, some slowdown in defense spending in Israel, in Europe and to some extent in the United States,” Chief Executive Officer Joseph Ackerman said in a call with investors on Aug. 14. “We compensated by making some investment in other areas like Asia-Pacific and South America, and now we take advantage of that.”

The company received more than 75 percent of its revenue from the U.S., Europe and Israel in 2011, according to data compiled by Bloomberg. Europe’s share has declined from 26 percent in 2009 to 19 percent last year, while sales from the rest of the world have been increasing each year since 2007, the data show.

Growing Needs

“These markets all tend to have growing defense needs and budgets that are on long-term increase,” Ackerman also said during the Aug. 14 call. “There will be a shift on defense spending in western markets to a more balanced global spending future.”

Ackerman, who has been the CEO of Elbit for 16 years, will resign from his position in April, the company said in an Aug. 13 statement. He will be replaced by Bezhalel Machlis, who is the executive vice president of Elbit.

The company’s shares in Tel Aviv declined to 137 shekels, or $35.42.

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq stock market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.

Given Gains

Given Imaging, an Israeli maker of pill-sized cameras for diagnosing digestive ailments, rose 3.3 percent in New York to $15.43. The company’s shares in Tel Aviv gained 2.5 percent today to 60.34 shekels, or the equivalent of $15.60.

The stock has surged 16 percent since Sept. 18, when Given said it submitted trial data for regulatory approval in Japan.

Alvarion Ltd., an Israeli telecommunications-equipment maker, is considering a reverse stock split as it comes up against an Oct. 23 deadline to bolster its share price or be ejected from the Nasdaq Composite Index, Chief Financial Officer Lior Shemesh said yesterday.

“A reverse stock split is on the table but not something I would prefer to do,” Shemesh said by phone from Tel Aviv. The best option for Alvarion would be “to recover the business of the company and show profitability for a few quarters and shares will be at the level they should be,” he said.

Alvarion has had discussions with Nasdaq to extend the deadline by another six months, Elana Holzman, vice president of investor relations, said on the call with Shemesh.

The shares slid 3.2 percent to 42.6 cents in New York. The shares in Tel Aviv lost 3.5 percent today to 1.66 shekels, or 43 cents.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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