Israeli defense contractor Elbit Systems (ESLT) looks well-positioned to benefit tremendously in the next few years from important developments in its home country and from its continued, demonstrated ability to win huge deals from other nations, including countries that are not very friendly with Israel.
And important information which I recently discovered has made me more convinced than ever that Elbit’s airborne anti-missile system within several years can become a tremendous, ground-breaking blockbuster for the company.
Because of the company’s very powerful, positive catalysts, I believe that long-term investors should consider buying ESLT stock, despite its rather elevated valuation.
Huge, New Opportunities in Israel
Last month, Israeli Prime Minister Benjamin Netanyahu announced that the country would spend $108 billion in the next 10 years “to build an independent Israeli munitions industry.” In other words, the government will subsidize a tremendous expansion of Israel’s defense sector. Since Elbit, as of 2024, was Israel’s largest defense contractor by revenue, it is likely to be a major beneficiary of this initiative.
And because Israel plans to provide these subsidies in order to reduce its dependence on foreign countries for its defense, the country will very likely vastly increase the amount that it spends on weapons made by Israeli companies.
Making the latter development even more likely is Netanyahu’s recent decision to “taper off” American aid over “the next ten years. ” The lion’s share of that assistance is used by Israel to procure arms from U.S. companies. When the Middle Eastern country spends more of its own money on weapons instead of utilizing U.S. funds, it’s likely to purchase many more products from Israeli contractors, including Elbit, than it currently does.
Elbit Continues to Win Impressive Deals and Has Obtained Major Contracts From Big Critics of Israel
The United Arab Emirates (UAE) reportedly agreed to pay Elbit roughly $2.3 billion in eight years in exchange for the firm’s strategic airborne defence system. The UAE has sharply criticized Israel’s policies towards Iran and Gaza.
And the company recently won a $150 million deal from a subsidiary of UK-based BAE Systems (BAESY), even though the current British government has gotten into multiple diplomatic conflicts with Israel in the last year. Under the agreement with BAE, ESLT will “supply its Iron Fist active protection system for the CV90 infantry fighting vehicle” which is used “by multiple European NATO members.”
On the other hand, Elbit failed to obtain a $2.7 billion deal with the UK that it was vying for recently, and Spain cancelled a 700 million euro contract that involved Elbit. Still, the agreements with the UAE and BAE systems increase the likelihood that Elbit will not be hurt overall by anti-Israeli sentiment. And the willingness by the UAE and BAE to conclude major contracts with Elbit, despite the fact that the company is based in Israel, suggests that ESLT has top-notch products.
Moreover, on January 12, Elbit disclosed that it had obtained contracts worth $275 million over five years in exchange for supplying its “advanced airborne self-protection electronic warfare (EW) suite” to an unnamed “country in the Asia-Pacific region.” Under the agreement, the country will use Elbit’s products, including its “advanced laser and tracking technologies,” to protect its helicopters and small-and-medium aircraft from missiles.
The Asian country’s willingness to pay so much for the system indicates that it’s one of the more advanced airborne anti-missile products available. The deal also bodes well for the company’s ability to successfully develop an airborne anti-ballistic missile product.
New Information on Elbit’s Airborne Anti-Missile Laser
In past columns, I noted that Elbit helped develop Iron Beam, Israel’s laser-based anti-missile system and that using lasers to shoot down enemy missiles will be much less costly than using missiles to do so. Further, I reported that Elbit is developing an airborne version of Iron Beam and that such a system would likely be much less vulnerable to adverse weather than the ground-based Iron Beam.
According to a report published last month by an Israeli publication, the airborne Iron Beam will have a much more important advantage versus its ground-based counterpart. Specifically, ground-based “Iron Beam is not designed to intercept ballistic missiles,” but is only supposed to destroy smaller projectiles, while Elbit’s airborne version is “intended to intercept ballistic and hypersonic missiles at high altitudes.”
In the wake of this report and the fact that my research indicates that no other entity is developing a similar system, it’s very possible in a few years that Elbit will be offering the only laser anti-missile system capable of shooting down ballistic and hypersonic missiles. If that scenario materializes, I believe that the product could cause the company’s top and bottom lines to surge by large amounts, causing ESLT stock to also jump enormously.
Valuation and the Bottom Line on ESLT Stock
The shares have a rather high forward price-earnings ratio of 50.85 times. However, I believe that the company’s tremendous opportunities make the stock a buy despite its elevated valuation.
*This article is intended to be informational only; it is not financial advice
