On Thursday, RBC Capital Markets adjusted its stance on General Dynamics Corp. (NYSE: NYSE:GD), downgrading the stock from Outperform to Sector Perform and setting a new price target of $290.00. The downgrade comes amid concerns over the aerospace and defense company's near-term prospects, particularly in its Gulfstream aircraft deliveries.
According to InvestingPro data, GD currently trades at $262.27, near its 52-week low of $247.36, with a P/E ratio of 20x and revenue growth of 11% over the last twelve months.
The firm cited a slower than expected delivery ramp for Gulfstream jets as a key reason for the downgrade. This observation is linked to the recent performance of General Dynamics' stock and a change in market sentiment. The anticipated deliveries for the fourth quarter of 2024 did not meet expectations, which has led to a reassessment of the company's aerospace margin forecasts for the years 2025 and 2026.
Despite these concerns, InvestingPro data shows GD maintains strong fundamentals with a 46-year track record of consistent dividend payments and relatively low price volatility with a beta of 0.6.
The revised price target represents a decrease from the previous target, with the new figure based on a 17 times multiple of the firm's estimated 2026 free cash flow (FCF). The analyst believes that the defense segment of General Dynamics will continue to face challenges until there is clearer insight into the defense policies under the second administration of President Trump, referred to as "Trump 2.0."
General Dynamics, known for its defense products and services, also faces broader industry headwinds. The defense sector is often sensitive to changes in government policies and military spending, which can impact companies like General Dynamics that rely on large government contracts.
The new price target of $290.00 reflects a more cautious outlook on the company's financial performance in the coming years. General Dynamics' stock will continue to be monitored by investors as they assess the impact of these revised expectations on the company's future growth and profitability.
InvestingPro's Fair Value analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of GD among 1,400+ top US stocks.
In other recent news, General Dynamics and Huntington Ingalls (NYSE:HII) stand to benefit from a $5.7 billion boost in Navy shipbuilding funding, as highlighted by TD Cowen analyst Roman Schweizer. This funding is part of a Continuing Resolution that will fund the U.S. government through March 2024 and includes $100 billion in emergency funding. The bill allocates funds for Virginia-class submarines and the Columbia-class submarine program, which are seen as positive for General Dynamics and Huntington Ingalls.
General Dynamics has also announced an extension to its executive consulting agreement with former Executive Vice President of Combat Systems, Mark C. Roualet. The agreement allows General Dynamics to continue benefiting from Mr. Roualet's expertise in the combat systems division.
Analysts have made several revisions following General Dynamics' recent earnings and revenue results.
Jefferies downgraded General Dynamics from Buy to Hold, lowering the price target to $300 from $345 due to earnings and revenue concerns.
Goldman Sachs also downgraded the stock from Neutral to Sell, citing challenges across all business sectors, while Deutsche Bank (ETR:DBKGn) maintained their Hold rating, adjusting the price target to $303.
Wolfe Research also downgraded General Dynamics' stock rating due to margin pressures, leading to a cut in 2025/26 estimates. These are the recent developments for General Dynamics Corp.
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