On Jan 2, 2014, Zacks Investment Research upgraded Elbit Systems Ltd. (ESLT) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Elbit Systems reported positive earnings surprises in 2 out of the past 4 quarters with an earnings beat of 26.3%. In the previous quarter, the company reported earnings of $1.32 per share, surpassing the Zacks Consensus Estimate by 3.9%. Quarterly earnings were also 11.9% higher than the year-ago figure, primarily on the back of an improvement in revenues as a result of strong performance at the company’s Computers, Communications, Intelligence and Command and Control (“C4I”) and airborne systems businesses.
Elbit Systems expects strong demand from the Asia-Pacific and the Latin American region to play an important role to cover the contract shortfalls from the U.S. In Dec 2013, the company inked a contract worth $229 million with the Australian Department of Defense.
To cope up with the growing demand from the clients at the Asia-Pacific region, Elbit Systems and a Korean company called Sharp Aviation K formed a joint venture called Sharp Elbit Systems Aerospace (“SESA”). The new entity provides various kinds of products and services, including Korean Light Attack Helicopter and the Korean Future Fighter Development project.
As of Sep 30, 2013, the company had a backlog of orders of $5.7 billion. Elbit Systems has already finished a part of backlog orders in 2013 and the major portion of it will be completed in 2014, 2015 and 2016. This will ensure a steady revenue stream.
The present valuation also makes Elbit Systems attractive. As of Jan 2, 2014, the company’s forward P/E multiple was 11.1%, a discount of 32.9% to the peer group average of 16.6%. The company’s return on equity (“ROE”) was 20.7%, higher than the peer group average of 14.7%.
Other Stocks to Consider
Some other stocks worth considering in the aerospace and defense equipment industry include Astronics Corporation (ATRO), Alliant Techsystems Inc. (ATK) and Spirit AeroSystems Holdings, Inc. (SPR). While Astronics Corporation holds a Zacks Rank #1 (Strong Buy), Alliant Techsystems and Spirit AeroSystems carry a Zacks Rank #2 (Buy).