Electro Optic Systems Holdings Ltd (ASX: EOS) shares have been on fire this week.
Thanks to the announcement of another major contract win, this ASX defence and space stock has rocketed over 40%.
This means that its shares are now up over 400% since the start of the year.
But if you thought it was too late to invest, think again! That's because Bell Potter believes there's more upside to come for this high-flying stock.
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What is the broker saying?
Bell Potter was pleased with the company's announcement of an US$80 million contract from a South Korean customer for a High Energy Laser Weapon (HELW) and an agreement to establish a joint venture in the country. It said:
Establishment of a joint venture (JV) between EOS and the customer to develop and supply the Korean market with 100kW HELWs on terms to be agreed; and licensing of IP relating to 100kW HELWs for the Korean market to the JV. The contract is expected to be fulfilled after delivery at the end of CY27e and subsequent demonstrations. The contract was previously expected to be awarded in CY26e.
We view this award as further evidence of the significant revenue opportunity available to EOS from the directed energy counter-drone (C-UAS) vertical. Currently, EOS is the only supplier in the world to have been awarded a HELW export contract for a 100kW system. We believe that current competitive dynamics in the HELW industry are favourable for EOS, with US companies unable to export directed energy technology; the UK offering a lower power (30kW) weapon; and Israel's "Iron Beam" system lacking clarity on export restrictions.
In response, the broker has boosted its earnings estimates meaningfully again. It adds:
We have upgraded EPS +15%/+42% in CY26/27e, reflecting: revenue upgrades due to the larger than expected HELW contract and increased confidence of further HELW contracts awarded; gross margin expansion on account of greater revenue skew to higher margin HELW contracts; and favourable working capital changes.
Should you buy Electro Optics Systems (EOS) shares?
According to the note, the broker has retained its buy rating on Electro Optics Systems (EOS) shares with an improved price target of $9.00 (from $8.10).
Based on its current share price of $7.19, this implies potential upside of 25% for investors over the next 12 months.
Bell Potter concludes:
We retain our Buy rating and raise our TP to $9.00. EOS is positioned as a market leader in C-UAS solutions and is leveraged to increasing budget allocations to C-UAS technologies. We see positive news flow over the next 6 months stemming from CUAS and RWS contract awards.
