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ESLT into earnings



May 19, 2008 – Comments (1) | RELATED TICKERS: ESLT , SPR , BA

ESLT seems very well positioned going into earnings. As many other companies are beating estimates with in the defense realm, they have very little downside as they operate on contracts and overseas spending is increases. ESLT specializes in unmanned air vehicles, space technologies, surveillence and reconascence, electronic intelligence and military communication systems just to name a few.

With respect to 2007, ESLT's revenues increased by 30% from 2006. Net earnings in 2007 were $1.81 per share versus $1.72 in 2006 but this included a write down of $.58 per share with reference to the acquisition of Tadiran. Backlog at the end of last year was $4.62 billion which is 22% higher than 2006. Cash flow increased to $261 million from $201 million the year prior. These numbers were quite good and I expect the growth to continue.

The reason I believe they will fly through earnings has more to do with their holdings and the types of products these companies produce. The first is Tadiran which produces military communication systems. Cyclone Aviation Products produces aerostructure components. These types of companies have been doing well this earnings season and I would suspect as well here. Silver Arrow produces UAV systems. These systems have been in high demand. The reason for this is that militaries spend millions of dollars on pilot that can be killed in combat, by leaving the home and having them for missions where their plane is shot down is invaluable to militaries all over the world. Elbit Security Systems produces optical security systems that are in vogue since the 9/11 attacks. Elisra specializes in advanced defense solutions. These systems are always being upgraded to maintain security. Kinetics produces components for combat vehicles. Semi-Conductor Devices makes infrared detectors and laser diodes. Opgal Optronic Industries makes thermal imaging systems for commercial applications. All of these areas seem to be positioned well in this environment of terrorist and other difficulties. The military exposure should prevent downside in the stock.

On January 20th of 2008, they were awarded a contract for $40 million with respect to thermal imaging systems. On January 27th, they received another $40 million contract with the Royal Netherlands Army for the purchase of their advanced battlefield management system. On February 11th, the United States Marine Corp signed a contract for $26.5 million for lacer spot imagers. On March 5th, a $160 million contract was signed with SPR for purchase of parts. This one I found intrigueing as the majority of SPR's parts go to Boeing. The contract runs from 2009-2016 and was their largest ever for commercial aircraft parts. They also won a contract with the French Special Forces for UAV aircraft on March 25th. On April 9th they received an initial order of $3.8 million to provide HUD's for the new F-16 aircraft. This contract could be valued at much more as it depends on how well it goes. Lastly, on May 5th, they received a $127 million contract to provide communication solutions.

When checking Yahoo Finance the analyst has an estimated earnings growth of 24.4% for this quarter on 28.8% revenue growth. This year is 23% earnings growth on 16.8% revenue growth. The one thing with respect to this stock that I am bearish is the chart as it seems to have hit resistence and started a new trend. Support seems to be around $52 but I think there is upside to $60. Look for them to beat earninigs and raise guidence.

1 Comments – Post Your Own

#1) On May 19, 2008 at 9:13 PM, joeykid13 wrote:

And...ESL...Edward S. Lampert is starting to buy homebuilders...I know this is off topic, but I believe this represents a trend toward recovery...but what do I know...merely the jester.

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