Elbit Systems Ltd (ESLT)

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Analysts mixed on Elbit Systems-Tadiran moves
07.7.2005 / 12:46
Hertzel Laks

The new formulation of Koor Industries' (NYSE:KOR) great defense merger is arousing mixed feelings among analysts. Elbit Systems (Nasdaq:ESLT) has replaced Tadiran Communications (TASE: TDCM) as a buyer for Koor's 70% stake in Elisra, according to a company value of $100 million. Ultimately Elbit Systems is supposed to buy 40% of Tadiran too.

IBI analyst Yuval Zehira had recently issued a Buy rating for Elbit Systems, based on the dip in the share price. Today he says the transaction now being proposed is a reasonable one, and he views it as a positive business development for Elbit Systems.

His 12-month price target for Elbit Systems stock is $27 per share, which is 20% above its opening price this morning.

Post-merger Elbit Systems' volume of operations should double from a billion to $2 billion a year, Zehira estimates. "The most important thing is that Elbit Systems is positioning itself as a consolidator in the defense industry," Zehira writes, adding that the company is also positioning itself well ahead of the piecemeal privatization of Israel's government defense companies.

He is less optimistic about Tadiran. Granted he thinks it's good that Tadiran is not the one buying Elisra, which was not synergetic with Tadiran's business and would have been a waste of its good money. But he feels the company's business is stuttering. Its backlog of orders has been shrinking, and he foresees it slumping to a new low in the second quarter.

Elbit Systems chief executive Joseph Ackerman has been named to chair Tadiran, and his top priority will be to advance the mergers, Zehira says. He believe Elbit Systems will want to buy more than 50% of Tadiran, which could support the share price if it acts through the market. Meanwhile, his rating for Tadiran is Neutral.

But Yuval Ben Zeev of Clal Finance Batucha likes Tadiran rather more: his investment rating is Buy and his price target is NIS 187, which is 22% above its present level. He admits that Tadiran will be presenting a weak second quarter, with a drop in revenue to $78 million.

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