First Read General Dynamics Corp: Strong demand across the board, particularly strong bizjet results

Research evidence excerpt

First Read General Dynamics Corp: Strong demand across the board, particularly strong bizjet results

Forecast returns

Forecast price appreciation -6.9%

Forecast dividend yield 1.7%

Forecast stock return -5.3%

Market return assumption 9.3%

Forecast excess return -14.5%

Company Description

General Dynamics is a prime defense contractor and manufacturer of Gulfstream business

aircraft. Sales to the US government are 70% of revenue and Gulfstream (Aerospace) is 25%.

GD's three defense segments are Marine Systems (nuclear submarines and surface ships),

Combat Systems (tanks, wheeled combat vehicles, weapons systems, and munitions), and

Technologies (IT solutions and mission support, C5ISR systems and solutions).

Valuation Method and Risk Statement

Our 12-month price target is based on 15.7X our 5-8 quarter EV/EBITDA.

Risks

Business jet outlook: If the business jet outlook were to improve with strong orders and

continued backlog growth, it could result in sustained long-term growth rather than peak

production rates. On the other hand, if the market were to deteriorate further or faster, it

could offset defense tailwinds.

Defense budget: Changes to the Defense budget trajectory, whether by Congressional action

or the Presidential request, could immediately impact valuation and medium-long term

consensus estimates. While EPS and cash flow per share were stable last downturn, cuts risk

declines in both. Higher budget growth, even just keeping pace with inflation, would likely be

upside to consensus.

Politics: Worsening political gridlock in Washington could increase the risk of budget cuts and

disruption to Government funding. An increase in the prioritization of austerity could lead to

budget cuts. Inversely, an orderly funding of FY24 and an extension of the 2025 debt ceiling