Why defense contractors are back on the menu
Three years of Western stockpiles flowing into Ukraine and Israel have changed the arithmetic for defense contractors. Munitions that took decades to build have been consumed in months, and the buyers now have to replace them. On top of that, NATO members are moving toward the 2% of GDP defense-spending guideline, and several European governments are already beyond it. The result is a demand cycle that does not depend on any single conflict ending soon.
That is the “rearmament decade” argument at the heart of Dylan Jovine’s current pitch. The specific pick is Elbit Systems, but the thesis is a sector call first and a stock call second. We cover the broader space-stock and defense-contractor angle in our defense contractor explainer, which lays out how government procurement cycles actually work.
What makes a defense contractor attractive right now
The single most valuable attribute in this cycle is combat-proven status. A system that has been used in real engagements has an edge in procurement because buyers know it works under fire, not just in a test range. Elbit’s exposure to Iron Dome, David’s Sling, and a range of artillery and munitions products puts it squarely in that category.
The second attribute is backlog. Elbit’s order backlog has swollen past $30 billion for the first time in its history, a figure we verified against the company’s own disclosures. Backlog is revenue already contracted, and it converts the thesis from speculation into a question of execution and margin. A contractor with a record backlog has visibility that a company chasing one-off contracts does not.
Where the earnings actually come from
It is easy to assume a company like Elbit makes most of its money from Israel’s high-profile missile-defense systems. The reality is different. The biggest earnings driver today is land-based defense: artillery and shells, where the depletion of Western munitions in Ukraine has forced restocking at scale. Missile defense and cyber work are meaningful, but they are not the whole picture.
Diversification is another underappreciated feature. Israel’s own forces account for just over a quarter of Elbit’s revenue. The rest comes from NATO and allied customers, which spreads the demand base across governments with deep pockets and long budgeting horizons. That geographic mix is part of what makes the company more than a single-country bet. A fuller picture is in our Elbit Systems Ltd profile.
The catch investors need to weigh
The demand story is strong, but the sector has already repriced. Elbit trades near $783 a share now, up from roughly $200 in early 2024, and it carries a forward multiple near 44 times next-year earnings of about $18 against roughly 10% revenue growth. That is a high price for a business whose revenue grows in the low double digits.
The backlog versus market cap comparison helps frame it. A $30 billion backlog against a market cap north of $35 billion means the entire current equity value is roughly matched by contracted work, which is a solid foundation but not an obvious bargain. Defense contractors are quality compounders when bought at reasonable prices; the open question is whether today’s price is reasonable. The adjacent defense-stock field is also worth understanding, and our AI defense stocks explainer covers the other side of the sector’s tech argument.
Defense spending is a long-cycle business
One reason the rearmament argument has legs is that defense procurement does not turn on a dime. Budgets are set years in advance, contracts run for years, and production lines take time to expand. When NATO governments commit to rebuilding stockpiles, that commitment translates into orders that stretch across the decade, which is exactly the timeframe Jovine is pitching. This is not a demand spike that fades in a quarter.
The flip side is that this is not a momentum trade either. Defense contractors compound through long, lumpy contract cycles, and their share prices move with the backlog and the multiple investors are willing to pay, not with a single quarter’s news. Elbit’s earnings trajectory illustrates the point. Analysts expected about $7 a share by 2026 in early 2024, and the consensus now sits near $17, with about $18 the following year and roughly 10% revenue growth after that. The improvement is real and substantial, but it arrives gradually, and much of it is already reflected in the share price.
For a new buyer, the practical question is whether the multiple can hold. At roughly 44 times next-year earnings, the stock already assumes a long runway of growth and steady backlog conversion. That is not a criticism of the business. It is a statement about the price, and the two are not the same thing. A quality contractor bought at the wrong price can still produce years of flat returns.
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