Elbit Priciest in Two Years on Tanks: Israel OvernightLeslie Picker
Elbit Systems Inc., Israel’s biggest private developer of defense technology, is trading at the highest valuation in two years after reducing its reliance on U.S. and European markets by bolstering sales to Asia.
Shares of Elbit gained 4.7 percent last week in New York to $41.61 to trade at 10.9 times estimated earnings, the most expensive level since May 2011. The Bloomberg Israel-US Equity Index of the largest Israeli stocks in the U.S. declined 0.2 percent in the week, while Cellcom Israel Ltd. rose the most since November.
Elbit has jumped 41 percent from an almost six-year low reached in August to trade 12 percent above its average valuation over the past three years. The Haifa-based company, which got $195 million in new orders from Asian countries in the past week, is winning a majority of new contracts outside the U.S. and Europe for the first time in at least seven years. It earned 51 percent of revenue from the U.S. and Europe in 2012 and has made 70 percent of its known deals this year with Asian countries.
“Their long-term efforts are bearing fruit now,” Ella Fried, a senior analyst at Bank Leumi Le-Israel Ltd. in Tel Aviv who rates Elbit the equivalent of a buy, said by phone March 21. “They spotted the demand. They’re a small company and conscious of the danger of being absolutely dependent on the Western markets.”
Elbit shares surged to the highest level since Jan. 2 last week after announcing a $115 million deal with an Asian customer for electronic warfare systems March 17. Three days later, its subsidiary Elbit Systems Electro-optics Elop Ltd., or Elop, said that it received an $80 million contract to upgrade armored fighting vehicles.
Defense spending in Asia has surpassed that in European countries for the first time in 2012, according a March 14 report by the London-based International Institute for Strategic Studies. Europe represented 18 percent of planned global expenditure in 2012, compared with 20 percent for Asia and Australia, the study showed.
Elbit is seeking new markets as American defense programs face a $42.7 billion reduction, according to Bloomberg Government estimates, after automatic spending cuts came into effect March 1 amid a political stalemate over how to reduce the U.S. budget deficit.
“Right now, the competition will be who has the best cost,” Michael Lewis, managing director at McLean, Virginia-based Silverline Group LLC, a defense consulting firm, said in a phone interview March 22. “I don’t see why they can’t compete with pricing. They’ve been successful in the price-competitive U.S. market. They can take that same model and apply it to other countries.”
The company posted its first profit in the fourth quarter, recording net income of $57.2 million from a $13 million net loss a year earlier.
“The company continues to grow during a contracting period in defense budgets around the world,” Silverline’s Lewis said. “However, the question is do you continue to buy? I think they’ll witness some headwinds from defense cuts in the next six to nine months.”
Elbit shares gained 2.2 percent in Tel Aviv at 9:50 a.m. to 154.3 shekels, or $42.22, as the benchmark TA-25 Index added 0.7 percent to 1,247.26. The Bloomberg Israel-US gauge fell to 90.39 on March 22.
Cellcom, Israel’s largest mobile provider, jumped 6.3 percent last week in New York, the most since the five days to Nov. 23. Allot Communications Ltd., the Israeli maker of products that track wireless traffic, was the biggest decliner on the Israel-US index, losing 8.6 percent in the week.
The shekel strengthened to the highest level in almost 15 months March 22 as Israel and Turkey normalized relations. The currency added 0.3 percent to 3.655 per dollar.