Elbit Systems Q2 Aerospace Sales Fall 7.8% Despite Overall Revenue Growth

Elbit Systems Ltd. (NASDAQ: ESLT) reported second-quarter revenue growth of 15.9% year over year, yet its aerospace segment recorded a 7.8% decline in sales to $495 million. The stock is up more than 20% in 2026, outperforming the S&P 500 Aerospace & Defense Index, which has fallen about 9% over the same period.

The aerospace weakness stems from an unfavorable one-time project mix and lower European sales of key training and simulation systems. First-half revenue for the segment fell 2.8% compared to the same period last year. Higher unmanned aerial vehicle sales partially offset these losses within the broader company results.

At approximately $736 a share, Elbit Systems trades at a price-to-earnings multiple of 55x, well above the sector median P/E of 20x. This valuation implies investors are paying more than $50 for every dollar of past annual earnings. A lower forward P/E of 39 suggests the market expects earnings to increase, but the company must achieve significant growth to justify the current premium.

Financial performance in the second quarter included a 38.1% rise in net income. The company holds about $32 billion in backlog, with 73% of those orders attributable to locations outside Israel. Operating margin increased to 10.4%, though the stock's price-to-sales ratio of approximately 4.17x remains significantly higher than the sector median of 1.77x.

In the first half of the year, Elbit Systems generated $517.8 million in operating cash flow, up from $304 million in the same period last year. The company raised its dividend payout to $1 per share, resulting in an annualized payment of $4 per share. This quarterly return has nearly doubled from $0.53 per share as of 2023.

Institutional positioning shifted in the second quarter, with the number of hedge funds holding stakes dropping to 24 from 27 in the first quarter. Arrowstreet Capital reduced its stake by 34% to $178.98 million, while Heard Capital increased its position by 21% to $99.27 million. Short interest remained low at 0.49%, although shares sold short increased to about 229,010 as of September 30, up from 213,06K as of August 31.

The annualized dividend of $4 represents a yield of roughly 0.54% at the current share price. The investment case relies primarily on earnings growth and capital appreciation rather than income generation, given the low yield relative to the stock's premium valuation.