William Blair initiated research coverage of General Dynamics Corporation (GD $225.50), which is one of the five U.S. defense primes and the main contractor for high-profile programs of record that include the Columbia-class submarine and the Abrams battlefield tank.
Analyst Louie DiPalma estimated that the company would report EPS of $12.23 in 2023 and $14.28 in 2024, and expects EPS to grow at an 8.7% compound annual rate through 2025.
“GD has a storied pedigree for elite design, manufacturing, and repair/overhaul services for some of the Department of Defense’s most high-profile platforms,” said DiPalma. “General Dynamics engineers were responsible for the original development of the Stinger surface-to-air missile and the F-16 fighter jet, and today, the company is the prime contractor for the Department of Defense’s most important program, which is the $132 billion Columbia submarine program. GD’s marine systems revenue, driven by Columbia, is projected to inflect and increase by $600 million in 2024 and 2025 after flattish growth in 2023. In addition, GD’s subsidiary, Electric Boat, is the prime contractor for the U.S. Navy’s Columbia-class ballistic missile submarine program, which is viewed as the most survivable leg of the U.S. nuclear triad deterrent strategy, with Electric Boat slated to deliver 12 Columbia ballistic missile submarines between 2027 and the early 2040s. GD has high visibility into Electric Boat revenue increasing by roughly $4.5 billion over the next 10 years.
“Further, GD’s iconic Gulfstream unit is set to begin delivering its new G700 and G800 models this year in its most significant aircraft introduction since the G650 in 2012,” added DiPalma. “Gulfstream has the highest market share in the long-range jet segment of the private aircraft market, the highest profit margin of aircraft peers, and the most premium business aviation brand. Thus, we anticipate that Gulfstream’s launch of these new models this year will drive strong orders and deliveries over the next five years, enabling margin expansion to continue. Also, we expect GD’s systems to play a key role in a decades-long rearming of U.S. allies in response to the Ukraine war and geopolitical tension in Taiwan. About two-thirds of GD’s total revenue comes from defense customers. Poland was recently announced as the first U.S. ally to procure GD’s Abrams tanks, and in our view, it will not be the last. Orders for tanks and ammunition are steadily increasing and the pipeline is robust, with the U.S. Army just this week announcing plans to sextuple production within the next five years of 155mm artillery shells, for which GD is the main producer.”
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