General Dynamics (GD 2.09%) has been a highflier for investors with shares returning an impressive 39% in the past year, even outperforming the 25% gain in the S&P 500 index. The aerospace and defense giant is posting record sales and earnings amid strong demand from its diverse product line-up.
The headlines are positive, but is General Dynamics stock a buy today? Let's discuss whether shares could be a good idea for your portfolio today.
NYSE: GD
Key Data Points
Robust growth in 2024
With a history spanning more than 70 years, General Dynamics is recognized for its high-profile offerings across military combat systems, marine platforms, and state-of-the-art business jets. What may not be as widely known are the company's next-generation technologies covering not only national security level cyber defense, but also cloud software applications that have found commercial success.
These many moving parts highlight the attraction of the stock as a potential investment opportunity with the story this year being a backdrop of "robust growth." In the second quarter, revenue rose 18% year-over-year to $12 billion, while earnings per share (EPS) jumped 21% to $3.26. A large part of that momentum was driven by the aerospace segment, where sales climbed by 54%. The Gulfstream subsidiary is benefiting from a ramp-up in production and deliveries, helped by the new G700 aircraft model.
In the combat systems group, a 19% increase in revenue from Q2 2023 was accompanied by the highest level of quarterly orders since 2014. Management is citing sizable new contracts, including a $1.9 billion max award potential for armored vehicles and logistics support services to the Canadian Army.
The trends in the marine systems segment are also steady with a 13% revenue increase last quarter capturing ongoing deployments of new submarines for the U.S. Navy. The technologies segment has helped add to profitability with management citing industry-leading margins and a climbing backlog as a growth runway.
The results have been strong enough for the company to hike full-year guidance. General Dynamics now expects 2024 revenue to be between $47.8 billion and $48.2 billion, representing a 13.4% midpoint increase from the result in 2023. The EPS forecast range of $14.40 and $14.50, compared to $12.20 last year, was revised slightly higher from the prior $14.35 to $14.45 target.
Image source: Getty Images.
Tailwinds for the rally to continue
There's a lot to like about General Dynamics. On the one hand, the volatile geopolitical environment with active war zones in Eastern Europe and the Middle East represents a tailwind for the business as allied forces prioritize security spending.
A major theme in the defense sector is the ongoing effort to modernize systems and integrate more advanced technologies. On this point, General Dynamics has emerged as a leader in specialized cybersecurity applications for national security, even incorporating artificial intelligence (AI) as a new growth driver.
At the same time, the company is also well-positioned to capitalize on what have been resilient global macroeconomic conditions that are expected to continue. Notably, ongoing growth in the private jet market is great news for its Gulfstream group to consolidate its market share. Overall, the company benefits from several operating and financial tailwinds.
In terms of valuation, shares of General Dynamics are trading at approximately 21 times management's 2024 EPS guidance. Even as this level is in line with the peer average from defense and aerospace leaders like RTX, Northrop Grumman, and Lockheed Martin, there's a case to be made that General Dynamics deserves a higher premium given its stronger growth momentum suggesting shares are currently undervalued.
GD Revenue (Quarterly YoY Growth) data by YCharts
Decision time for General Dynamics
I believe General Dynamics stock deserves a buy rating and can work for investors within a diversified portfolio. The bullish case is that the company continues generating higher earnings, which should translate into a catalyst for the stock to keep rallying. Investors interested in this stock should monitor the order backlog as a sign of customer demand along with trends in the profitability margin.
