U.S. defense spending cuts are hindering Gilat Satellite Networks Ltd. (GILT) from planning ahead in the Israeli company’s largest market.
“The biggest concern is the uncertainty,” Chief Executive Officer Erez Antebi said in an interview at Bloomberg’s headquarters in New York yesterday. “It’s very hard to plan.”
Gilat, the second-best performer among Nasdaq telecommunications (CUTL) stocks since August, makes satellite Internet connection systems that are also used by the military. The company got 46 percent of revenue from the U.S. in 2011 and sells its technology to companies including Honeywell International Inc. (HON:US) U.S. defense programs face a $42.7 billion reduction, according to Bloomberg Government estimates, after automatic spending cuts came into effect March 1 amid a political stalemate over how to reduce the U.S. budget deficit.
Shares of Petach Tikva, Israel-based Gilat have slumped 1.8 percent since the $85.3 billion in total cuts known as sequestration took effect. Gilat added 0.2 percent yesterday to $5.55 in New York, as the Bloomberg Israel-US Equity Index of the most-traded Israeli companies in the U.S.increased 0.4 percent to 91.15. Partner Communications Co. and Allot Communications Ltd. (ALLT:US) led the gains.
As much as 20 percent of the satellite technology maker’s sales come from defense-related projects, the company said. The U.S. Congress let across-the-board budget cuts at the start of the month, split evenly between defense and nondefense, proceed because it couldn’t compromise on deficit reduction.
Gilat’s subsidiary, Wavestream, which makes transceivers for in-flight communication, announced on Jan. 29 that it signed a contract with Honeywell. In December, the Israeli satellite company said a Southeast Asian navy will use its products and services to upgrade ground operations.
Antebi said that while uncertainty lingers in the U.S. markets, there’s still opportunity in the defense industry. “I seriously think this market will grow significantly,” he said. “The need for satellite broadband around the world is growing so much in all these applications, that everybody needs it.”
Shares of the satellite technology developer lost 0.4 percent to 20.41 shekels in Tel Aviv, the equivalent of $5.52. Israel’s benchmark TA-25 Index was little changed at 1,240.51.
Gilat has more than doubled in New York since hitting a three-year low of $2.35 in early August. The company will probably report sales (GILT:US) of $86.1 million for the first quarter, a 12 percent increase from the prior year, according to the average estimate of two analysts compiled by Bloomberg.
Shares are trading at 20 times estimated earnings, near the highest valuation in a year.
Partner, Israel’s second-largest mobile phone services provider, advanced 5.8 percent to $6.05. Cellcom Israel Ltd. (CEL:US), the nation’s largest, rose 1.9 percent to $7.85. The companies have been among the three worst performers on the TA-25 Index in the past 12 months after competition in the sector intensified.
“Even if 2013 will continue to be challenging, investors feel worst of competition is over and price rationalization will come sooner rather than later,” Zach Herzog, a Tel Aviv-based analyst with Psagot Investment House Ltd., said yesterday.
In Tel Aviv, shares of Partner (PTNR:US) increased 2.9 percent to 21.64 shekels, the equivalent of $5.85, and Cellcom gained 2.4 percent to 28.94 shekels, or $7.84.
Teva Pharmaceutical Industries Ltd. (TEVA) added 0.7 percent to $41.06. The Petach Tikva, Israel-based company agreed to pay a $2.25 million civil penalty to settle environmental violations. Separately, Chief Financial Officer Eyal Desheh said Teva is looking for “small” acquisitions. Shares in Tel Aviv rose 1.6 percent to 152.30 shekels, the equivalent of $41.22.
Tower Semiconductor Ltd. (TSEM) surged 5.6 percent to $7.49, the highest in a month. The company said Israeli banks will extend its existing loans’ maturity dates and cut principal payments for 2013 and 2014.
“All they’ve done is extend the debt,” Jay Srivatsa, an analyst at Chardan Capital Markets LLC who rates Tower a buy, said in a phone interview yesterday. “In some ways it’s good because they don’t need to make a big payment right now, but at the end of the day, it still remains on their balance sheet.”
Shares in Tel Aviv rallied 4.6 percent to 27.50 shekels, or $7.44.
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