Shares of defense contractor General Dynamics (GD +0.77%) jumped 4% through noon ET Wednesday after reporting better-than-expected sales and earnings for Q3 2023 this morning.
Heading into the quarter, analysts had forecast General Dynamics would earn $2.75 per share on $9.5 billion in quarterly sales. In fact, the defense company-cum-Gulfstream jet-builder earned $3.04 per share for the quarter, and its sales topped out at $10.6 billion -- significant beats on both the top and bottom lines.
NYSE: GD
Key Data Points
General Dynamics by the numbers
How big of a surprise was this? Well, consider that Wall Street was expecting General Dynamics' sales to decline 5% year over year in Q3, but sales grew 6% instead. Even more amazing, earnings that analysts hoped would merely sit flat year over year instead grew 10%.
Of course, the strangest thing of all is probably that analysts didn't anticipate sales and earnings growth for a defense contractor, what with conflicts ongoing in multiple locations around the world driving increased demand for military hardware. As General Dynamics CEO Phebe Novkovic noted, the company is seeing "strong demand and steady revenue growth across the business," exactly as you'd expect to see in this geopolitical environment -- but exactly what Wall Street did not foresee.
Out of General Dynamics' four main business divisions, all but one (aerospace -- the division that builds Gulfstream jets for civilian customers) saw growth in revenue, and two of them (combat systems and technologies) saw earnings rise as well.
What comes next for General Dynamics
The good news for investors is that the future should be even easier to predict for General Dynamics than the past. Management noted that even as fast as sales grew in Q3, the company's order book of new business is growing even faster. General Dynamics reported a 1.4 "book-to-bill" ratio, which basically means that it took in 40% more orders for work to be done in the future than it performed (and got paid for) in Q3.
And that means that business is still growing. Although General Dynamics did not give specific guidance for what to expect in the future, it means that as strong as sales were in Q3, they should be even stronger going forward.
When you consider that General Dynamics stock is now priced at just 19 times earnings (the average S&P stock costs 24 times earnings) and is paying a dividend yield of 2.3% (the average S&P stock pays only 1.8%), I'd say the fact that business is getting even better is a strong hint that you should consider buying some General Dynamics stock today.
