Gilat: a defense pivot, priced at management's own number

Gilat's adjusted EBITDA for the first half of 2026 was $30.5 million. Its operating cash flow was -$14.1 million. Both numbers are real, and the gap between them is most of this analysis.

Gilat makes the ground equipment that talks to satellites. Its pending purchase of Comtech's satellite and space business would push annual revenue above $700 million on management's projection and more than double its defense sales. The business is improving. The shares, at $10.14, already assume it finishes the job.

At $10.14 on September 25, 2026, the shares trade 3.3% below my triangulated Base value of $10.49, an upside of 3.5%. The Bear value of $6.43 is 36.6% below the price and the Bull value of $13.67 is 34.8% above it. The framework's required margin of safety for this profile is 40%, which puts the maximum buy price at $6.29. The shares would need to fall about 38% to get there. Until then, this is a hold with no room for error.

Route: SF-13 Industrial and Manufacturing, satellite ground infrastructure and defense communications subtype. Economic classification: Standard, borderline Quality growth (7/12). Primary method: normalized EV/EBITDA after stock-based compensation. Secondary method: price to normalized owner free cash flow. Values are present fair-value estimates, not 12-month price targets.

What Gilat is

Gilat is an Israeli company that sells the ground half of satellite communications: network platforms, small ground terminals (VSATs), electronically steered antennas (flat antennas that point at satellites without moving parts), modems, high-power amplifiers and integrated systems. It reports three segments: Commercial (including in-flight connectivity), Defense, and Peru (network build-outs and services). Its subsidiaries are Wavestream, DataPath and Stellar Blu.

Revenue grew 47.9% in 2025, to $451.7 million from $305.5 million. That sounds like a compounder until you notice that Stellar Blu, bought in January 2025, contributed about $127 million of the $146 million increase.

Comtech is the next purchase. Gilat has agreed to buy most of Comtech's Satellite and Space Communications segment for $157.5 million in cash, on a cash-free, debt-free basis. Comtech keeps its cyber business and certain receivables. The acquired business had adjusted revenue of $195.2 million and adjusted EBITDA of $16.8 million in the twelve months to January 2026, and roughly 70% to 80% of it is defense-related. Closing is expected toward year-end, subject to regulatory approvals.

The latest quarter

Operations look good: growth, better margins and new defense orders, including a $32 million award in September. Cash doesn't. In the first half, $30.5 million of adjusted EBITDA became -$14.1 million of operating cash flow. Customers paid $28.3 million less in advances while receivables grew $22.2 million and inventories $20.2 million.

Management calls it working-capital timing. It may be. The second half has to prove it, and hitting the guidance midpoint needs about $277 million of second-half revenue, 19% more than the first half.

Which numbers matter for Gilat

For a hardware, defense and project business, the primary measure is normalized EBITDA (earnings before interest, taxes, depreciation and amortization), with owner free cash flow (cash from operations minus capital spending, after real costs) as the hard control. Adjusted EBITDA is generous. In the first half of 2026 it was $30.5 million against GAAP operating income of just $9.1 million. Part of the gap is ordinary depreciation and amortization ($10.0 million). The rest is stock-based compensation (SBC, pay in shares): $3.4 million of recurring SBC plus a one-off $7.0 million non-cash charge from settling the DPI earn-out with shares.

Because SBC is a real cost to shareholders, I deduct recurring SBC of $7 million a year (the first-half $3.4 million annualized) from every adjusted EBITDA figure before applying a multiple. Comtech's SBC is not disclosed and is not deducted, which flatters the post-deal numbers slightly. The version without the deduction is shown in the robustness checks.

Guidance of $61 to $66 million adjusted EBITDA excludes Comtech. Adding the acquired business's $16.8 million to the $63.5 million midpoint gives about $80 million, which is exactly the "projected annual adjusted EBITDA of $80 million" that Gilat itself quotes for the combined company. My Base case uses that $80 million. It's management's target, with no cushion and no synergies. Keep that in mind, because the price is built on it.

Shares, debt and the new convertible

Shares outstanding were 77.03 million at June 30, 2026, up from 73.83 million at the end of 2025 and from a weighted 57.1 million in the first half of 2025. Of the 2026 increase, 2.5 million shares were issued to settle the DPI acquisition earn-outs. The latest quarter's diluted count, which includes options, was 79.43 million, and that is the denominator used here. The first-half diluted average of 78.34 million understates the current count.

The bigger change came after the quarter. On September 7, 2026, Gilat closed a $100 million private placement of five-year convertible notes. They carry a 3.75% coupon, mature on September 1, 2031, and convert into shares at $16.00, about 60% above the $9.94 reference price. That is up to 6.25 million new shares, 7.9% of the diluted count. The rate steps up by 1.25 points if the shares do not average at least $15 over a 30-day window that ends 18 months after issuance. Gilat can force conversion from September 1, 2027 if the shares trade at or above $20 for 10 trading days. Proceeds are for general corporate purposes. Below $16, I treat the notes as debt, which covers the whole range from Bear to Bull.

The Comtech announcement on June 15 said the deal was expected to be "fully funded from Gilat's existing cash resources." Two and a half months later Gilat borrowed $100 million, for general corporate purposes. That may simply be prudence. It also tells you that $159 million of cash, minus $147.5 million still owed to Comtech, doesn't leave much working room while operating cash flow is negative. Pro forma, after closing Comtech:

That is about $0.08 a share, effectively zero. Gross cash after closing would be about $109 million against about $102 million of debt. The figure excludes second-half working-capital swings, deal costs and the final purchase-price adjustments, none of which are known yet.

Primary valuation: normalized EV/EBITDA

Equity value is enterprise value plus pro forma net cash of $6.7 million, divided by 79.43 million diluted shares. Bear and Bull follow directly from the table with no manual adjustment. The multiples sit between a plain industrial hardware maker and a full defense-contractor premium. I do not give Gilat the full defense multiple until the acquired business shows it can turn EBITDA into cash.

Notice how little separates the Base multiple from the market's. Today's price already values Gilat at 10.9x EBITDA after SBC, so the Base's 11.25x adds just 3% on top. Nearly all of the value is in the $80 million target, not in a re-rating.

Secondary valuation: normalized owner free cash flow

Reported free cash flow has been erratic. Data-provider figures I could not tie to the filings put it at roughly $21 million in 2023, $25 million in 2024 and $9 million in 2025, and the first half of 2026 was -$18.3 million (operating cash flow of -$14.1 million less $4.2 million of capex). To build a normal year for the combined company I start from $80 million adjusted EBITDA and subtract my estimates of SBC ($7 million), capital spending ($10 million), cash taxes ($7 million) and integration and transition costs ($4 million). That leaves about $52 million, and I use a range of $45 to $55 million with a $50 million midpoint. That is about double the best recent year, 2024, so this leg depends on working capital normalizing.

At 16x to 18x normalized owner free cash flow, equity value is $720 to $990 million. Adding net cash of $6.7 million and dividing by 79.43 million shares gives $9.15 to $12.55 per share, with a midpoint of 17x on $50 million of $10.79. The current price equals 16.1x the $50 million midpoint.

Historical cross-check

A clean, comparable history of Gilat's EV/EBITDA is not available from primary sources. Data providers show very different numbers depending on whether they use adjusted or GAAP-based EBITDA, and 2025 was distorted by the share price surge. As a judgment range I use 10x to 12x EBITDA after SBC, which gives $9.27 to $11.11 per share, with a midpoint at 11x of $10.19. This is an estimated framework range, not a sourced trading statistic, and it carries only 10% of the weight.

Valuation triangulation

The weighted result is $10.4910, and I use it without rounding. The primary and secondary methods differ by 3.4%, far below the 20% warning threshold. That closeness is partly by construction, because both start from the same $80 million target. The two methods agree on the price of that target, not on whether it will be reached.

What is the market already pricing in?

At $10.14 and 79.43 million diluted shares, market capitalization is about $805.4 million. Subtracting pro forma net cash of $6.7 million gives an enterprise value (EV, the price of the whole business including debt) of about $798.7 million. That is 10.0x management's $80 million adjusted EBITDA and 10.9x after deducting SBC. Put differently, at the Base multiple of 11.25x the price already assumes about $71 million of EBITDA after SBC, or $78 million adjusted. That is 97.5% of the combined target.

So the market isn't skeptical about Comtech. It's paying for near-complete delivery of the $80 million, for working capital to normalize and for a smooth integration. Upside from here needs more than the plan: cross-selling, higher margins or a defense-style multiple.

Bear, base and bull scenarios

The values above are the primary-method values. The triangulated Base of $10.49 blends in the free-cash-flow and historical methods. The Bear and Bull cases use the primary method alone, because only the Base has independent secondary inputs. I assign no probabilities to the scenarios.

Sensitivity: EV/EBITDA after SBC

Only 12x or more on $73 million or more of EBITDA gives a cushion of more than 9% over today's price. At 10x, even the Bull EBITDA is worth about the current price.

How the buy price is set

The framework starts from a 30% margin of safety for a grade B confidence score and adds 10 points for integration and cash-conversion uncertainty. I give no credit for balance-sheet strength, because after Comtech is paid for, net cash is about zero and Gilat carries roughly $102 million of debt. The required margin of safety is therefore 40%. Applied to the $10.49 Base, the maximum buy price is $6.29. The shares traded between $9.37 and $20.93 over the past 52 weeks, so this price is well outside recent experience. A drop toward it would mean something changed, and the fundamentals would need rechecking before buying.

Dividend

Gilat does not pay a dividend, so this is not an income thesis. The new convertible notes carry a 3.75% coupon, first payable on September 1, 2027, worth about $3.75 million a year.

Reasons to own GILT

• Defense scale. Comtech would more than double Defense revenue, expand the U.S. engineering and manufacturing base and open larger U.S. and allied programs.
• Operating momentum. First-half revenue grew 18% and adjusted EBITDA grew 57%, and guidance was reiterated after the second quarter.
• Real technology. Electronically steered antennas, in-flight connectivity terminals, Wavestream amplifiers and SkyEdge networks are differentiated, and orders keep arriving, including $43 million of Sidewinder antenna orders in June.
• Liquidity. The $100 million convertible carries a low 3.75% coupon, no financial maintenance covenants and a maturity in 2031.
• Depressed shares. The price is near the bottom of its 52-week range. If the Comtech integration goes well and cash conversion turns, the Bull case is worth $13.67.

What could go wrong?

• Cash conversion. Adjusted EBITDA has not turned into cash. The first half's free cash flow proxy was -$18.3 million.
• Integration and closing. The Comtech deal needs U.S. regulatory approvals, and integration, employee retention and transition costs are real. Comtech keeps certain receivables and its cyber business, and the final price adjustments are unknown.
• Dilution. Shares rose from 57 million to 77 million in a year, and the convertible adds up to 6.25 million more above $16.
• Quality of earnings. Adjusted EBITDA excludes SBC, acquired-intangible amortization, integration costs and earn-out charges, and first-half GAAP operating income was only $9.1 million.
• Earn-out history. The Stellar Blu earn-out milestones were not met, and its fair value is now zero. That is a relief for cash but shows how far its early ramp fell short of plan.
• Competition and technology. Rivals include Hughes, Viasat, ST Engineering iDirect and Kratos, and satellite architectures keep changing.
• Geopolitics. Gilat is an Israeli company, and regional conflict is a stated risk in its filings.

Management execution

Management delivered record 2025 adjusted EBITDA of $53.2 million, strong first- and second-quarter 2026 EBITDA growth, and reiterated guidance. It repaid the $60 million loan that financed Stellar Blu in December 2025 and arranged long-dated financing ahead of the Comtech close. Against that, operating cash flow has been negative, the Stellar Blu earn-out milestones were missed, the DPI earn-out cost 2.5 million shares, and a deal described as cash-funded now comes with a convertible. Assessment: 14/20, good. The next credibility test is whether the combined EBITDA converts into owner free cash flow.

Stock Analyza scorecard

The raw 7/12 would read as Quality growth, but acquisition-driven growth, dilution and unreliable free cash flow per share override it, so the standard engine applies. Business quality is 64/100: moat 14/20, economic return 9/20, balance sheet 10/15, cash quality 8/15, growth and runway 12/15, management 8/10, dilution and governance 3/5. Gilat has credible engineering and customer advantages, but returns on capital and cash conversion do not yet support a compounder label.

Confidence score

Company filings and press releases are current and detailed. Confidence is limited by post-close economics that are estimates, by the wide gap between adjusted and GAAP profit, and by lumpy project-driven cash flow.

What I would watch from here

Review after the Comtech closing terms and after the first reporting period that includes the acquired business. The third-quarter report is expected around November 11, 2026.

The three most important thesis breakers

1. Adjusted EBITDA keeps failing to convert into free cash flow.
2. The Comtech integration destroys value, through a lower contribution than $16.8 million, worse closing terms or a failed approval.
3. Renewed dilution, from new share issuance or conversion of the notes at $16 or more before the value has been created.

Adversarial review

The first draft's core arithmetic reconciled: market cap, the percentage upside and the maximum buy price followed from its own inputs. But checking it against Gilat's filings and press releases found problems that changed the answer.

Net effect: Base value moved from $11.50 to $10.49, upside from 13.4% to 3.5%, and the maximum buy price from about $7.50 to $6.29. The Hold and watchlist conclusion survives, but on a thinner cushion than the first draft suggested.

The strongest bear counter-thesis: the $80 million target is management's own, it is adjusted, and it comes before any integration costs. If Comtech delivers only half of its $16.8 million, EBITDA after SBC is about $64.9 million, which is worth $9.28 at 11.25x and $6.62 at 8x. The strongest bull counter-thesis: defense demand is strong, Comtech is bought at a modest price, and working capital reverses in the second half. At $90 million adjusted EBITDA and 13x, the shares are worth $13.67, and a full defense multiple would be worth more.

Audit flags: post-close EBITDA and free cash flow are my estimates, not audited. The convertible's net proceeds are an estimate. Comtech's SBC and the final purchase-price adjustments are unknown. The historical multiple range is a judgment, not a sourced series. Even without the SBC deduction, the price sits well above the buy ceiling, so the Hold and watchlist conclusion survives the central tests. The publication gate status is PASS WITH WARNING.

Final verdict: hold at $10.14, watchlist for new money below $6.29

Gilat is a better company than it was a year ago, and Comtech could make it a much larger one. But the price already reflects management's own $80 million EBITDA target, and the balance sheet ends up with roughly zero net cash and $100 million of convertible debt. Adjusted EBITDA has taken Gilat to $30.5 million in six months. Operating cash flow has taken it to -$14.1 million. Until those two numbers meet, $10.14 is paying for the first one.

Verdict: WATCHLIST at $10.14. Triangulated Base value $10.49, upside 3.5%, Confidence B (18/25). Required margin of safety 40%, maximum buy price $6.29.

The case improves if the first post-close quarters show combined EBITDA above $80 million and positive free cash flow, or if the price falls into the buy zone.

Sources

Primary sources include Gilat's Q2 2026 earnings release and financial tables (August 5, 2026), its Form 6-K announcing the Comtech acquisition (June 15, 2026), Comtech's announcement of the sale, Gilat's Form 6-Ks on the convertible notes (August 31 and September 7, 2026), and its FY2025 annual report. The market price comes from StockAnalysis.com.

The reference market price is $10.14, the September 25, 2026 close. Balance sheet figures are as of June 30, 2026 and adjusted for the September convertible and the pending Comtech payment. Forward EBITDA and free cash flow are estimates.