Israel’s largest publicly traded arms and defense company, Elbit Systems Ltd. (XTAE:ESLT, Financial), singularly caught the eye of a manager who focuses on fundamental research but who has also tangled with public companies’ boards of late, David Winters (Trades, Portfolio).
Winters’ global Wintergreen Fund (Trades, Portfolio) had $580 million in assets as of June 30, with 76% invested in common stocks concentrated in the U.S., Switzerland and U.K. He described the fund, started in 2005, in a recent shareholder letter as embracing companies with pristine balance sheets and shunning modish market favorites, with cigarette companies Reynolds American Inc. (RAI, Financial), British American Tobacco (LSE:BATS, Financial) and Altria Group (MO, Financial) among its largest four holdings as of Sept. 30.
His sole third-quarter pick, Elbit Systems, claimed 2.95% of his common stock portfolio. He bought 133,157 shares, valued around $12.73 million. The company’s third-quarter average trading price was 370.04 Israeli shekels ($101.82 U.S.), about 5% below its closing price Friday.
Though based in Israel, Elbit’s generates much revenue abroad through government contracts, providing drones, helicopters, tanks, surveillance and a wide variety of warfare technology. In September, the entire Israeli defense industry held its breath for the outcome of a staggering 10-year defense deal with the U.S.
The deal hinged on whether Israel would accept a key component that would prevent the country from converting part of the funding into shekels and instead force it to spend in the U.S. The two-sides agreed to the conditions, signing the $38 billion deal on Sept. 15.
Elbit, as one of the four biggest defense companies, has many international subsidiaries including one in the U.S., Elbit Systems of America, through which it conducts most of its business with the U.S. military. Throughout 2015 and early 2016 it expanded joint venture activity in other international markets and continued to divest non-core assets in Israel.
The company is also looking to diversify revenue streams by developing civilian uses for its military technology.
For the third quarter, Elbit’s revenue was $780.8 million, compared to $764.8 million in the prior-year quarter. Net income was $63.4 million, increased from $49.7 million for the same quarters. Elbit had $162.2 million in cash at the end of the third quarter, and $76.88 million in long-term debt. It derived 23.5% of its revenue from Israel and 25.6% from North America.
Elbit’s P/E ratio is 18.01, near a one-year low. Its price at $103.89 per share on Thursday, and P/S ratio at 1.33 are near their respective 10-year highs.
See David Winters (Trades, Portfolio)' portfolio here.
