Why the Electro Optic share price rose 5% today

The Electro Optic Systems Holdings Limited (ASX: EOS) share price has risen 5.44% today compared to the S&P/ASX 200 Index (ASX: XJO) which is down 0.81% for the day. By the close of trade, the Electro Optic share price had risen to $6.20 after closing yesterday’s session at $5.88.

Over the past 12 months, the Electro Optic share price has shot more than 28% higher. As global tensions begin to escalate, the defence contractor could be a major beneficiary of future government spending.

What does Electro Optic Systems do?

Electro Optic Systems is Australia’s largest aerospace entity and the largest defence exporter in the southern hemisphere. The company focuses on defence, space, and communications technology.

Let’s take a closer look at exactly what Electro Optic Systems specialises in:

Defence:

Battle-proven technology includes remote weapon stations and ancillary products such as gimbal mounts, fire control systems and sensor units for gaining strategic advantages in land warfare.

Space:

Sensors and systems for space domain awareness to detect, track, classify and characterise objects in space. Other areas of the company’s space portfolio consist of missile defence, optical communications, and space products such as telescopes, laser devices and electronics.

Communications:

Electro Optic Systems provides global satellite communications services and systems.

What’s moving the Electro Optic share price?

A possible catalyst for the rising Electro Optic share price could be the company’s much anticipated FY20 results release on Monday next week.

Electro Optic Systems’ defence peers registered strong earnings for the full-year. Austal Limited (ASX: ASB), for example, reported a solid FY20 scorecard thanks to the recent increase in defence spending by Australia and the United States. Over half of Austal’s revenue came from US Navy contracts.

In June, the Australian Government committed to a contract to purchase 251 remote weapon stations from Electro Optic Systems, valued at close to $100 million. As COVID-19 restrictions begin to ease, global logistics has started to resume which will benefit the defence contractor. This will include the fulfilment of a $410 million delivery to an unknown overseas customer.

Investors are expecting Electro Optic Systems to post a net loss after tax of $12.7 million for the fiscal year ending 30 June. However, the outlook for the second half is more positive with the company actively processing its $620 million order backlog and $3 billion in pipeline projects.

Foolish takeaway

I think today’s Electro Optic share price would be a great buy-and-hold option for years to come. The company has positioned itself as an integral part of the defence community, developing and manufacturing advanced weaponry and communications to trusted military forces.

I am confident that the Electro Optic share price will again reach its all-time high of $10.80 achieved at the start of the year.

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Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited and Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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