With a jump of 70%: the comeback of the security giant

When the war broke out in Ukraine at the beginning of 2022, Maniyat Elbit Systems arose against the background of the expectation of an increase in the European defense budgets. Less than two years later, a war of iron swords broke out in Israel, but precisely then the Elbit stock fluctuated for many months, while the rest of the defense stocks traded in Tel Aviv jumped by tens and hundreds of percentM.

However, in the last six months, the stock returned and gained momentum: from the end of June it jumped by almost 70% and is today at an all-time high, which reflects the largest defense company in the capital market with a market value of 13.3 billion dollars.

Among those traded on Wall Street, Elbit is today the fourth largest Israeli company, after the pharmaceutical company Teva and the two cyber security companies – Check Point and Cyberark. This is after the company, which is traded at the same time on Nasdaq and Tel Aviv, overtook Mobileye, Wix, Nice and others in terms of value.

Elbit has been managed for over a decade by Bezalel (Butsi) Machlis. The controlling owner of the company is Michael (Mickey) Federman, who owns 43.9% of the shares with a current value of over 5.8 billion dollars.

As of today, there is no longer an interested party in the company, but in previous years the Canadian bank Bank of Nova Scotia held over 5% of Elbit Systems shares through its asset management company, and in the previous year it sold a significant part of its holding amid protests and petitions against it due to this holding – which caused pressure on the stock Elbit mainly in early 2024.

After the bank sold most of its holding in the company, this pressure seems to have been released. According to the latest report, at the end of the third quarter the Canadian bank owned about 1.25% of Elbit shares compared to about 4.2% at the end of 2023.

The ceasefire will not affect

What caused the stock to rise, and what is expected now that the ceasefire has come into effect? Ilya Feiner, an analyst at Leader Capital Markets, says that “Elbit rose because the business environment is very positive and strong. We see an increase in defense budgets in many countries and an increase in defense procurement – of course also in Israel with a jump in Elbit’s transaction volume with the defense establishment.

“Now, with Trump taking office as president, he is putting pressure on NATO countries to increase their budgets from 2% to 4% and even 5% (NATO countries are obliged to invest 2% of their GDP in the budget, and now Trump is talking about This raises expectations in the market for continued strength in the business environment and for Elbit to receive more orders.”

In his estimation, even with the ceasefire Elbit will continue to operate in March: “We do not expect that the truce will lead to a lull in stockpiling, but on the contrary, it will continue and intensify. The Ministry of Defense signed a NIS 1 billion contract with Elbit to establish a new factory that will reduce the dependence on production abroad. Even if the war in Ukraine ends – which is not currently on the horizon – the understanding is that we are going into years of equipping and a positive cycle in the defense sector, which will lead to an increase in Elbit’s results in the coming years.”

In this context, Feiner adds that the war in Israel is a fertile ground for Elbit’s developments, and estimates that its products will be in higher demand since they were “successfully tested” on the battlefield and proved themselves in the field. “Elbit trades at multiples higher than the sector since it is also exposed to Europe and Israel, and companies that are exposed to Europe can benefit significantly from the increase in defense budgets and the scope of operations, because the countries of the continent were underinvested in the previous years,” he says.

“The limitation – production capacity”

A Leader capital markets analyst also mentions the improvement in the company’s profitability. Elbit previously set a target for operating profitability of 10% in 2026 (compared to 8% in the first three quarters of 2024), and “the market understands that the business environment supports these targets”. In addition to operational profitability, Elbit also set a revenue target of 7 billion dollars in 2026 – and the company already estimated that they would be able to advance the target and achieve it already this year. According to Feiner, “What currently limits Elbit is not the volume of demand – if it could produce and sell what the customers need, it would have easily surpassed the target – but it is the production capacity. The company is expanding it, has invested in it and continues to invest in large volumes. We believe that it will reach the revenue goal of 7 billion dollars already in 2025.”

But all of this, according to him, is already priced in the stock: “The market is pricing in the continued increase in results, and to justify another upside, we would like to see a more significant improvement in profitability, or significant new wins, or progress in projects such as the laser (for air defense).” Despite this, Feiner believes that the positive sentiment is expected to continue.

“Achieve ambitious goals”

Oppenheimer also recently estimated that Elbit would be able to advance the schedule in achieving the business goals it presented, for revenues and operational profitability. In the third quarter reports published in November, Elbit presented a record in the backlog of orders that grew within a quarter by a billion dollars to 22.1 billion, alongside revenues of 4.9 billion dollars in January-September (growth of 12.6%) and a Non-GAAP net profit of 272 million dollars in this period.

Analyst Omri Efroni of Oppenheimer wrote following the reports that “We believe that Elbit may achieve the aforementioned revenue target ($7 billion) as early as 2025, in light of the large order backlog that is growing at an extraordinary rate, when the completion of the construction of new production plants in Ramat Beka and Modiin is expected accelerate the future rate of growth in revenues.” He added that the level of CAPEX (capital expenditures) is expected to remain constant after the company has completed Large investments in upgrading the ERP system and establishing the factory in Ramat Bekah, which in his estimation will strengthen its free flow in the future.

At the same time, Boffenheimer then raised the target price for Elbit shares to $280, and maintained the “excess yield” recommendation. The target price was then 13.6% higher than the price on the stock exchange, but since then the stock has continued to climb and has already overtaken it.

Afroni noted at the time that “the impressive growth in the order backlog supports the forecast of an acceleration in the rate of growth in revenues, at the same time as an improvement in profitability rates and cash flow. Elbit excels in exceptional growth and profitability rates for the defense industry, in light of technological innovation and diversification among diverse fields.”

He added that sales in Israel grew significantly, by 116%, against the background of the war and a considerable demand from the IDF for armaments, while revenues from Europe decreased by 13% due to the prioritization of armament supplies to Israel.