Elbit’s Jet Contract Triggers Advance on Earnings Bets

Elbit Systems Ltd., Israel’s largest non-state defense developer, jumped to a three-year high in Tel Aviv as investors bet on a rebound in earnings.

Shares of Elbit, based in Haifa, advanced 3.8 percent to 214.5 shekels, the highest since May 2010, at the close in Israel. The U.S. traded shares climbed 6.8 percent last week.

Elbit said last week that one of its units will provide hardware for Stockholm-based Saab AB’s Gripen fighter jets, two months after receiving a $33 million contract to supply electro-optical instruments for helicopters from an Asian customer. Adjusted earnings per share will rise 18 percent this year to $4.71, after tumbling 18 percent in 2012, according to the mean of three analyst estimates compiled by Bloomberg. The stock traded at 11.4 times estimated earnings or 33 percent below the average valuation of global peers.

“The stock has been incredibly cheap, while the company started to improve profit,” Craig Sterling, the global head of equity research at EVA Dimensions in New York, who has the equivalent of a buy recommendation, said by phone on Dec. 6. “It’s a combination of two things that is pushing the stock higher: cheap valuations and stronger operating performance.”

Cost Savings

Operating income jumped to $61.1 million in the third quarter from $49 million in the same period a year earlier, the company said in a Nov. 14 statement. Elbit said cost savings and improved efficiency measures drove the increase. About 68 percent of the company’s backlog related to orders outside of Israel, it said.

The company is seeking to boost its focus on advanced defense electronics and optics, Chief Executive Officer Bezhalel Machlis said in a Bloomberg interview in August. Global defense spending last year contracted for the first time in 15 years as U.S. and European cuts exceeded rising outlays in China and Russia, the Stockholm International Peace Research Institute said in April.

Elbit’s surge extended this year’s advance to 44 percent. The shares are poised for the biggest annual rally since 2007.

The Bloomberg Israel-US gauge of the largest 25 companies domiciled in Israel trading in New York fell to 107.72, dropping for the first time in five weeks. The measure has climbed 25 percent this year, compared with the 16 percent advance for the local benchmark TA-25 Index.

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