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General Dynamics Corporation (GD), a global aerospace and defense company, was incorporated in 1952 but traces its legacy back to 1899 when the Electric Boat Company was founded. Headquartered in Reston, Virginia, and valued at $77.5 billion by market cap, the company offers a broad portfolio of products and services in business aviation, combat vehicles, weapons systems, munitions, shipbuilding design and construction, information systems, and technologies.
Shares of General Dynamics have surged 13.8% over the past 52 weeks and 8.6% on a YTD basis - a solid performance - but trailing behind the broader S&P 500 Index ($SPX), which rallied 32.1% over the past year and returned 26.2% in 2024.
Zooming in further, GD also trailed behind the SPDR S&P Aerospace & Defense ETF’s (XAR) 37.2% gains over the past year and 28.8% returns on a YTD basis.
General Dynamics has been navigating a bit of a rough patch in 2024, trailing both the broader market and its peers despite some modest gains. The company’s stock underperformance can be traced to concerns over slowing defense budgets in key markets, rising competition, and the uncertain geopolitical landscape that delayed international orders.
The company's Q3 earnings report, released on Oct. 23, reflected these challenges. While General Dynamics' revenue improved 10.4% year over year, reaching $11.7 billion, it fell short of Wall Street’s expectations. Adjusted EPS of $3.35 missed forecasts by 5.4%, partly due to fewer-than-expected G700 aircraft deliveries.
The supply chain struggles also impacted operating margins, as delays in Marine Systems' submarine projects and a dip in Aerospace margins further weighed on the bottom line. The company also revised its full-year G700 delivery outlook, lowering it from 50 to 52 units to around 42, which led to reduced revenue projections.
Yet, GD stock managed to remain in the green, rewarding shareholders with consistent returns. A major factor behind this resilience is its dependable dividend history, which appeals to income-focused investors. The company has raised its dividend for 33 consecutive years, averaging an 8.71% annual increase over the past decade - outpacing inflation and bolstering investors' purchasing power. With a dividend payout ratio of just 41.3%, GD has room for future growth.
Though political dynamics can create uncertainty for defense contractors, General Dynamics has weathered these storms well. The continued demand for cutting-edge military technology, along with geopolitical tensions, has secured its place as a key partner for the U.S. government. The company’s strong book-to-bill ratio and a robust $92.6 billion order backlog in Q3 provide long-term revenue visibility, ensuring its stability even amid broader market pressures.
For the current fiscal year, ending in December, analysts expect General Dynamics’ EPS to surge 16.3% year over year to $13.98. However, the company's earnings surprise history has been less than stellar, as it has missed consensus estimates in each of the last four quarters.
Among the 21 analysts covering GD stock, the consensus is a “Moderate Buy” – slipping from the “Strong Buy” rating two months ago. The current rating is based on 14 “Strong Buy” ratings, one “Strong Buy,” and six “Holds.”
The overall configuration is slightly less bullish than it was two months ago. Over the past two months, the stock lost two “Strong Buy” ratings, resulting in a downgrade.
General Dynamics stirred up mixed analyst reactions after its Q3 earnings. Wells Fargo (WFC) nudged its price target to $322, maintaining an "Equal-Weight" rating, cautious about supply chain challenges potentially delaying G700 deliveries in Q4.
Meanwhile, RBC Capital upped its target to $330, reaffirming an “Outperform” rating, impressed by 10% revenue growth across aerospace and marine segments. Despite an EPS miss tied to delayed G700 deliveries, General Dynamics’ Q4 guidance for 27 jets sparked optimism. The outlook has analysts weighing its resilience against headwinds, showcasing a company balancing strong growth with operational challenges.
The mean price target of $333.96 implies an upside potential of 18.4% from the current levels. However, the Street-high target price of $365 suggests the stock could rally as much as 29.4%.
