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General Dynamics (GD) General Dynamics (GD) Current Date:11/04/2019 Div Yield: 2.15 Market Cap:53B Price 184.72 P/E (TTM): 16.06 P/CF (TTM): 25.26 P/B: 3.87 General Dynamics is one of the leading defense contractors for the the entire world, with most of their products being sold to the U.S. military. The company is the leading supplier in submarines for the U.S. navy, while also expanding into luxury commercial goods. GD is headquartered in Fairfax, Virginia and has operations in over 45 countries across the globe. General Dynamics was founded in 1952 through the combinations of Electric Boat Company, Canadair and several others. They went public in 1984. What makes General Dynamics unique? General Dynamics has been able to strategically set themselves apart from the competition by focusing on Marine military equipment, while also expanding into consumer goods and Our Valuation Models indicates that GD may be undervalued at its current price of $184.72 services. This makes them less due to the recent acquisitions still having a toll on its price. Recent sell offs have occurred due susceptible to changes in government to uncertainty in the U.S. China trade deal coming into fruition despite General Dynamics hitting and allows them to enter new markets earnings in Q3. GD continues to pull in strong defense contracts and strengthen their balance as they continue to innovate new sheet. We used a DCF model to value GD. Our DCF portrayed an extremely conservative price products. target of $196.50 due to uncertainty in the upcoming election cycle and current budget Why is GD a strong investment? negotiations. Our sensitivity analysis yielded target prices between $174.80 and $220.40. We General Dynamics recently made 3 key pulled the exit multiple using the industry EV/EBITDA 5 year average. We believe investors acquisitions in 2018 in order to expand have overlooked General Dynamics, causing an undervalued share price and a situations to globally to Europe, Saudi Arabia, and capitalize on potential gains. the Asia-Pacific. However along with these acquisitions large tariffs hit the manufacturing sector causing their share price fall at the end of 2018. Looking into 2019 and beyond, many of the U.S. navy ships are about to be retired from duty and GD is already planning new R&D to meet the Navy’s demands for a new fleet. Beyond this, Discussion of Economic Moat: General Dynamics maintains a strong economic moat through its General Dynamics has a strong backlog current business model. With 65% of its revenue deriving from government spending and spread across all 5 of their segments, GD receives constant cash inflows as many of these deals are of contracts to sustain them well into the multi-year and will continue to occur regardless of the economic cycle. With their strong cash flows future in case of any unplanned events. General Dynamics is looking to acquire international companies to vertically integrate themselves, Historical Data (Millions) while also expanding into new markets. 2016 2017 2018 Sales 30,561 30,973 36,193 Key Stats Comparison GD LMT RTN TXT Operating Exp 1,921 2,006 2,183 Price/Earnings 16.01 18.25 18.41 12.20 Interest 91 103 356 Price/Book 3.95 27.98 4.61 1.94 Dep & Amort 453 441 763 Price/Sales 1.37 1.88 2.11 0.81 Taxes 793 764 730 Book/Bill 1.05 1.2 1.27 1.0 Net Income 2,651 3,031 3,358 Rev Growth (3 Yr Avg) 7.33 5.96 9.40 1.84 Operating Margin % TTM 11.67 14.13 16.41 8.83 Total Assets 33,997 35,046 45,408 Net Margin % TTM 9.60 9.56 10.04 9.64 Total Liabilities 22,871 23,611 33,676 ROA % 1.05 12.63 10.45 5.80 Long Term Debt 9,421 10,512 18,937 ROE % 25.68 247.52 27.09 15.68 Retained Earn. 24,543 26,444 29,326 Debt/Equity % 113.98 372.16 42.14 81.75 Cap Ex -392 -428 -690.
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