Cantor Daily Research Highlights

Research evidence excerpt

Cantor Daily Research Highlights

pricing stand out as potential disruption to numbers, but we think

government support can rapidly offset them, as factors such as Defense Production Act dynamics and other legislative tools

prioritize ELMT’s operations. As we think about catalysts from here, we expect most of the potential to show up across this

and next summer, with better defense budgets driving better backlog and national security factors clarifying the need for

U.S. critical materials supply chain diversity.

Mixing U.S. Metals Towards Munitions – We view ELMT’s growth algorithm as a balance of near-term munitions and defense

electronics benefits and longer-term critical materials reshoring trends. Near term, we think munitions modernization,

munitions restock, and defense electronics modernization growth materially lift ELMT’s tungsten, molybdenum casing, and

microwave electronics businesses (~40% of sales). Longer term, we expect U.S. critical materials reshoring requirements to

lift ELMT’s research and industrial businesses (~60% of sales). We admit supply chain uncertainty and volatility in critical

materials’ spot pricing make us nervous about volatility in revenue growth. However, we think being at the crossroads of

rapidly accelerating defense growth and a key choke-point for industrial production suggest a healthy risk-reward on multi-

year outcomes.

Margins and M&A Can Be Helpful Levers – We expect ELMT numbers materially benefit from tailwinds on margins and M&A,

especially as ELMT mixes towards an increased U.S. government exposure on both fronts. For margins, we expect munitions

and defense electronics growth to drive a higher relative mix of accretive government sales vs. other businesses (medical,

energy, industrial, etc.).