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Cellcom Israel, Elbit Systems U.S. Shares Immune From Israel Fighting

TEL AVIV (TheStreet) -- Fighting has resumed with the end of the latest ceasefire between Israel and Hamas in Gaza,  but the hostilities have had little effect on two Israeli stocks that also trade in the U.S., Cellcom Israel (CEL - Get Report) and Elbit Systems (ESLT - Get Report) .

Cellcom Israel, established in 1994, is Israel's biggest cellular provider. Its shares on the New York Stock Exchange, at $11.75, are down nearly 16% for the year to date but up 1.8% for the past 52 weeks. According to the company's Web site it has nearly 3.2 million subscribers and operates on HSPA 3.5 Gen network technology for nationwide coverage.

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Like other Israeli stocks, Cellcom's share price fell at the start of latest Gaza conflict that began in July. While the drop was marginal in dollars, it represents a 5.4% drop from the current price and a 16% decline from the high of $13.60 in June, just one month prior to the outbreak of war.

However, the stock recovered slowly during July and the early part of August, without any substantial declines. A relatively flat period of trading took place between July 21 and August 15 where the price was fixed in a tight range between $12.15 and $12.25 per share. The stock has a market cap of $1.20 billion and a 52-week range of $10.10 to $14.07.

Elbit Systems, meanwhile, gained from the war because it is a global defense electronics company involved in commercial aerospace, military aerospace, command control, land and naval systems, surveillance and reconnaissance.

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The company trades both in Tel Aviv and on the Nasdaq. At nearly $59 shares are down 3% for the year to date but up 31% for the past 52 weeks. Shares have been as high as $64.66 on June 9 and as low as $59.16 nearly a month later. The stock has a market cap of $2.6 billion and has traded from a low of $43.11 to $64.66 over the past 52 weeks.

TheStreet Ratings team rates CELLCOM ISRAEL LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate CELLCOM ISRAEL LTD (CEL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.0%. Since the same quarter one year prior, revenues slightly increased by 1.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has slightly increased to $131.62 million or 7.89% when compared to the same quarter last year. In addition, CELLCOM ISRAEL LTD has also modestly surpassed the industry average cash flow growth rate of 7.55%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Wireless Telecommunication Services industry and the overall market, CELLCOM ISRAEL LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 5.34 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, CEL's quick ratio is somewhat strong at 1.15, demonstrating the ability to handle short-term liquidity needs.

TheStreet Ratings team rates ELBIT SYSTEMS LTD as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ELBIT SYSTEMS LTD (ESLT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, ESLT's share price has jumped by 32.93%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ESLT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • ELBIT SYSTEMS LTD's earnings per share declined by 10.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ELBIT SYSTEMS LTD increased its bottom line by earning $4.31 versus $3.98 in the prior year. This year, the market expects an improvement in earnings ($4.43 versus $4.31).
  • The current debt-to-equity ratio, 0.58, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.80 is somewhat weak and could be cause for future problems.
  • ESLT, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues slightly dropped by 0.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

At the time of publication, the author held no positions in any of the stocks mentioned.

┬┐This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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