HSBC has started coverage of Israeli defense electronics company Elbit Systems (Nasdaq: ESLT; TASE: ESLT). Analysts Avshalom Shimei and Maninag Namana give Elbit an "Overweight" recommendation, with target price of $75. This compares with a closing price in New York on Friday of $60.28, at which the company has a market cap of $2.54 billion. On the Tel Aviv Stock Exchange this morning, Elbit Systems shares are down 1.83%, at NIS 235.50.
"Elbit Systems is the largest nongovernment defense company in Israel focused on defense electronics. With its global presence and proven acquisition strategy; it is well positioned to benefit from the undergoing structural shift in the industry: Cash dollars are moving from mass defense systems to intelligence-gathering systems enabling surgical strikes while acting as vital power multipliers. Budget constraints also shift focus from platform replacement to upgrades of existing platforms a key expertise of Elbit," the analysts write.
Shimei and Namana forecast EPS of $4.55 for 2009 and $5.02 for 2010 for Elbit Systems. These forecasts are higher than the consensus analysts' estimate.
"We believe the market will react positively to these short- and medium-term catalysts: a) potential increase in HMS(Helmet Mounted Systems) orders for F-35 aircraft; b) a shift towards system upgrades, eg India’s modernization program; c) Winning bids on joint initiatives in the US, eg JV with General Dynamics offering new UAV platforms," the analysts conclude.
Published by Globes [online], Israel business news - www.globes.co.il - on June 29, 2009
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