The geopolitical landscape significantly influences the defence industry, as evidenced by the performance of Elbit Systems’ stock over recent years. When the war erupted in Ukraine in early 2022, there was a notable surge in Elbit’s stock due to anticipated increases in European defence budgets. Conversely, during the outbreak of the war in Israel, Elbit’s stock underperformed for several months, while other defence stocks in Tel Aviv experienced substantial gains.

In the past six months, Elbit Systems has experienced a remarkable recovery, with its stock price climbing by nearly 70% since June, reaching an all-time high. This surge has brought the company’s market valuation to $13.3 billion, solidifying its position as the largest defence company in the capital market.

Among Israeli companies traded on Wall Street, Elbit now ranks fourth in size, following pharmaceutical giant Teva and cybersecurity firms Check Point and CyberArk. This ascent has allowed Elbit to surpass notable companies like Mobileye, Wix, and Nice in market value.

Despite the ceasefire, analysts like Ilya Feiner from Leader Capital Markets predict continued strong performance for Elbit. The global increase in defense budgets, spurred by geopolitical tensions and NATO’s push to raise budget targets, supports a robust business environment. Even with the ceasefire, procurement is expected to remain vigorous, bolstered by significant contracts, such as a billion-shekel agreement with Israel’s Ministry of Defense for a new manufacturing facility.

Elbit’s ambitious goals include reaching $7 billion in revenue by 2025, a target likely to be met earlier due to the company’s expanding order backlog and production capacity investments. However, current limitations in production capacity rather than demand constrain growth. The company has invested heavily in expanding its facilities to meet the rising demand.

The market has already priced in Elbit’s anticipated gains, and further stock increases will depend on enhanced profitability, new project wins, or advancements in critical technologies like air defence lasers. Oppenheimer’s analyst Omri Efroni remains optimistic, citing Elbit’s record order backlog of $22.1 billion and substantial revenue growth. Oppenheimer has raised the stock’s target price to $280, maintaining an “outperform” recommendation, underscoring Elbit’s exceptional growth and profitability within the defence sector.

Image credit: IronVision, Elbit Systems