Should Investors Reassess Elbit Systems After Its 124% Rally Amid Rising Defense Contracts?

Thinking about what to do with Elbit Systems stock right now? You are not alone. After all, it is tough to ignore a stock that has soared by 124.0% over the past year and delivered a staggering 317.2% gain for those who held steady for five years. Even over just the last month, shares have climbed 3.9%. This momentum stands out against a broader market that has been anything but calm, with global conflicts and shifting defense priorities putting defense sector stocks in the spotlight.

So, what is behind the action? Investors have clearly been recalibrating their view of risk and potential reward, especially as the company continues to feature in headlines about defense solutions and evolving geopolitical tensions. For many, this new perception has translated into remarkable growth potential for Elbit. Yet, with such explosive returns, the big question now is not just about momentum but valuation. Does the stock’s current price make sense given what you are getting?

On a straightforward numbers check, Elbit Systems scores a 0 out of 6 on our undervaluation scale, meaning it is not considered undervalued on any of the major metrics analysts watch. But as you will see in the next section, looking at a range of valuation approaches paints a more complete picture. At the end of this article, we will dig into a smarter way to think about what this all means for investors weighing their next move.

Elbit Systems scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Elbit Systems Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a method that estimates a company's value by projecting its future cash flows and discounting them back to their present value. This approach provides a calculated intrinsic value based on what the company's future cash generation is worth today.

For Elbit Systems, the current Free Cash Flow (FCF) over the last twelve months was $592.2 million. Analysts have forecasted that FCF will continue to grow, with projections (extrapolated beyond analyst estimates) showing free cash flow reaching about $604.6 million by 2035. According to these forecasts, FCF is expected to fluctuate but generally increase over the coming decade. Future projections become less certain as they extend beyond the first five years.

Using these cash flow projections, the DCF model calculates an estimated intrinsic value of $507.04 per share. Compared to the stock's current trading price, this implies the shares are trading at a 230.7% premium to their calculated fair value.

Put simply, the numbers suggest Elbit Systems stock is significantly overvalued when judged by this long-term cash flow approach.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Elbit Systems.

Our Discounted Cash Flow (DCF) analysis suggests Elbit Systems may be overvalued by 230.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Elbit Systems Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is the preferred metric for valuing established, profitable companies like Elbit Systems because it directly compares the price investors are paying to the company’s current earnings. This metric is particularly helpful for understanding how the market values each unit of profit, making it a widely used gauge for both growth and mature businesses.

Growth expectations and risk play a significant role in determining what counts as a “normal” or “fair” PE ratio. A fast-growing or lower-risk company tends to trade at a higher multiple, while slower growth or additional risks generally justify a lower PE. With these dynamics in mind, Elbit Systems currently trades at a PE ratio of 58.41x. For context, this is well above the industry average of 47.05x in Aerospace & Defense and the peer average of 44.87x, indicating the market is pricing in strong expectations or unique qualities.

The Simply Wall St Fair Ratio metric adds important nuance. Unlike raw peer or industry averages, the Fair Ratio is tailored by factoring in company-specific traits like earnings growth, margins, risk, industry norms, and even market cap. This provides a more accurate basis for comparison because it considers the entire business context, not just its sector label.

When we compare Elbit Systems’ current 58.41x PE to its calculated Fair Ratio, there is a significant premium. This suggests the market is valuing its growth and qualities highly. However, the difference is notable enough to conclude the stock is currently overvalued on this basis.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Elbit Systems Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is a simple, intuitive approach to investing that lets you describe your perspective on a company by attaching your assumptions, such as its future growth, profit margins, and what you think is a fair value, to a story behind the numbers. Narratives connect the company’s story to your own financial forecast, linking the bigger picture directly to a calculated fair value.

This method is both accessible and dynamic, and it is available to everyone through Simply Wall St’s Community page, trusted by millions of investors. Narratives empower you to decide when to buy or sell by comparing your estimated fair value to the current market price. This approach allows you to act with confidence rather than guesswork. What makes Narratives especially useful is that they update automatically as fresh news, data, or company results come in, keeping your views relevant and ahead of the curve.

For example, with Elbit Systems, one investor may see huge future earnings potential and assign a high fair value, while another takes a cautious view and lands at a much lower number. Narratives offer a powerful way to personalize investment decisions.

Do you think there's more to the story for Elbit Systems? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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