Elbit Systems: strong execution at a rich valuation (stays HOLD)

We have revised our earnings forecasts and valuation model for Israeli defence contractor Elbit Systems (Elbit), reflecting the company’s strong 1H25 execution, its USD 0.6bn capital issue in May 2025, a lower WACC (driven by Israel’s declining sovereign bond yields) and the significant rerating of Elbit’s global defence peers over the past year. While our 2026E/2027E EBITDA and NI forecasts are now 13%/20% and 9%/13% higher, respectively, the impact of the global defence sector’s massive rally over the past year has had a more pronounced effect on our target valuation multiples and DCF analysis. Consequently, we have raised our 12M price target (PT) to USD 518/share for Elbit’s shares (from USD 252.2) but maintain our HOLD, due to the lack of upside. While the company’s backlog growth, FCF generation and margin expansion prospects remain strong (on the back of a supportive geopolitical background, with unprecedented defence budget increases across the globe), these prospects look to be fully priced in, considering the stock’s 21x EV/EBITDA and 36.8x P/E, on our revised 2026E numbers (vs. Elbit’s EM and DM peers trading at 20.2x EV/EBITDA and 33.5x P/E, on the 2026E consensus estimates). We maintain our cautious stance in the near term, while the ongoing recovery in operating margins and improved backlog-to-revenue conversion pace (on the back of Elbit’s production capacity investments) supports our long-term positive view.