As Europe rearms, an opportunity for Elbit

Michael (Mikey) Federmann  credit: Tamar Matsafi
Michael (Mikey) Federmann credit: Tamar Matsafi

Israeli defense company Elbit Systems' share price has jumped as investors anticipate higher sales in Europe prompted by Russia's invasion of Ukraine.

The war in Ukraine has been good for defense company stocks, among them Elbit Systems (TASE: ESLT; Nasdaq: ESLT). On Monday, Elbit's share price shot up 15.5% on Nasdaq, passing the $200 threshold for the first time, and it closed at an all-time high, giving the company a market cap of $9.1 billion. Elbit is now the seventh most valuable Israeli company on Wall Street, after overtaking Teva, NovoCure, Playtika,, and other companies.

Elbit's controlling shareholder is Michael ("Mikey") Federmann, who holds 44.2% of the company, a stake currently worth over $4 billion. At the beginning of this week, the value of his stake rose by over $500 million.

Elbit Systems, headed by Bezhalel Machlis, supplies a range of defense products. In the first three quarters of 2021, almost a third of its revenue came from sales in North America, while 26% came from the Asia-Pacific region, 21% from Israel, 17% from Europe, and the rest from Latin America and other places.

Assuming that European countries will now wish to arm themselves and buy defense systems, Elbit is likely to benefit, says Liran Lublin. Head Of Research at IBI Investment House. "In recent years, the geographic mix of Elbit's sales has tended more towards the US and Asia-Pacific, and Europe's share has been in decline," Lublin says. "There's an opportunity for Elbit here to get back to taking market share in Europe, as Europe raises defense budgets. Elbit has subsidiary companies on the continent."

"The strength of the Russian military has not been overlooked by the West, and most countries in Europe have taken steps to maintain their military power and their defenses. Nevertheless, these capabilities have not been put to any significant test, and the Russian invasion deep into Ukrainian territory could be a wake-up call for other countries in Eastern Europe to step up their armament and defense efforts, and to cut their dependence on Western support," Lublin wrote this week.

Lublin mentions that in past years, Europe accounted for a larger slice of Elbit's sales: 20% in 2018 and 22.6% in 2017. "Although sales to Europe have risen in absolute terms, the decline in sales to Europe as a proportion of Elbit Systems' total sales is a trend that goes back several years, and recent events could certainly revive this fading market."

In the first three quarters of 2021, Elbit Systems' revenue rose 15% in comparison with the corresponding period of 2020, to nearly $3.8 billion. Operating profit on a GAAP basis rose 40.8% to $311 million, and net profit attributable to shareholders rose 56.7%, to $266 million.

On a non-GAAP basis, net profit attributable to shareholders amounted to $273 million, or $6.16 per share, 27.8% more than in the corresponding period of 2020. At the end of the third quarter of last year, the company had an orders backlog of $13.6 billion, 72% of which are export orders.

Published by Globes, Israel business news - - on March 2, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Michael (Mikey) Federmann  credit: Tamar Matsafi
Michael (Mikey) Federmann credit: Tamar Matsafi
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