On Tuesday, Baird reaffirmed its positive outlook on General Dynamics Corp. (NYSE:GD) with an Outperform rating and a steady price target of $345.00.
The defense contractor's recent performance indicates fewer aircraft deliveries than anticipated, with only four Gulfstream G700s completed in the third quarter of 2024, a significant shortfall from the forecasted 16.
The company's management had previously set expectations for 16 deliveries in the third quarter, increasing to 23-25 in the fourth quarter, and aiming for a total of 50-52 aircraft for the full year. To date, the year-to-date delivery count stands at 15.
"We remain surprised by the slow pace of deliveries as the delay tied to the bonding of wires within the tail discussed in 2Q24 was considered a relatively easy fix even for the aircraft already pre-built," said the analsyts.
Due to these slower than expected delivery rates, Baird has adjusted its earnings per share (EPS) estimates for General Dynamics in 2024. The firm has reduced its EPS forecast by approximately 5% to $13.75, reflecting the impact of the delivery delays on the company's financial performance.
In other recent news, General Dynamics saw an 18% increase in Q2 revenue, largely driven by a 50% surge in business jet sales, and a rise in net income to $905 million from $744 million in the same quarter last year. General Dynamics has also secured several significant contracts, including a $299 million contract to maintain and enhance the Pentagon's network infrastructure, a $491.6 million contract from the Space Development Agency to advance the Ground Management and Integration program, and a potential $6.7 billion contract for the construction of up to eight John Lewis-class fleet replenishment oilers for the U.S. Navy.
The company's stock has seen mixed reviews from analysts, with Morgan Stanley upgrading General Dynamics stock from Equalweight to Overweight, while Deutsche Bank downgraded the stock from Buy to Hold.
General Dynamics is among the major defense contractors that could be affected by a proposed 'right to repair' bill, currently being investigated by U.S. Senator Elizabeth Warren. The legislation aims to allow the U.S. military to maintain its equipment independently. Lastly, the U.S.'s decision to increase military aid to Ukraine, including the purchase of new weapons, is expected to benefit the backlogs of defense contractors such as General Dynamics.
InvestingPro Insights
Despite the recent challenges in aircraft deliveries highlighted by Baird, General Dynamics (NYSE:GD) continues to demonstrate financial resilience. According to InvestingPro data, the company's revenue grew by 10% over the last twelve months, reaching $44.95 billion. This growth is particularly noteworthy given the current delivery slowdown in its Gulfstream division.
InvestingPro Tips reveal that General Dynamics has raised its dividend for 11 consecutive years, showcasing its commitment to shareholder returns even in the face of operational hurdles. This consistent dividend growth, coupled with a current dividend yield of 1.88%, may provide some reassurance to investors concerned about the recent delivery shortfalls.
The company's P/E ratio of 23.07 suggests that the market still has positive expectations for General Dynamics' future earnings, aligning with Baird's Outperform rating. However, it's worth noting that the stock is trading near its 52-week high, with a price at 97.49% of its peak, indicating that much of the positive outlook may already be priced in.
For investors seeking a deeper understanding of General Dynamics' financial health and market position, InvestingPro offers 9 additional tips that could provide valuable insights into the company's prospects amidst the current delivery challenges.
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