With a daily gain of 8.13%, a 3-month gain of 10.36%, and an Earnings Per Share (EPS) (EPS) of 12.18, General Dynamics Corp (GD, Financial) presents an interesting case for value investors. The question that arises is: Is the stock fairly valued? In this article, we will delve into a comprehensive valuation analysis to answer this question. Read on to gain valuable insights into the company's financial health, profitability, and growth prospects.
Introducing General Dynamics Corp (GD, Financial)
General Dynamics is a renowned defense contractor and business jet manufacturer. The firm operates through four main segments: aerospace, marine, combat systems, and technologies. Its aerospace segment is responsible for the creation of Gulfstream business jets and operates a global aircraft servicing operation. The combat systems segment produces land-based combat vehicles and munitions, while the marine segment creates and services nuclear-powered submarines, destroyers, and other ships. Lastly, the technologies segment focuses on products that provide command, control, computing, intelligence, surveillance, and reconnaissance capabilities to the military.
As of October 09, 2023, General Dynamics' stock price is $237.83, while its GF Value, an estimation of its fair value, stands at $227.9. This comparison sets the stage for a deeper exploration of the company's value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
2. GuruFocus adjustment factor based on the company's past returns and growth.
3. Future estimates of the business performance.
According to GuruFocus' valuation method, General Dynamics (GD, Financial) is estimated to be fairly valued. The GF Value, which estimates the stock's fair value, is based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 237.83 per share, General Dynamics stock is estimated to be fairly valued.
Given that General Dynamics is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength of General Dynamics
Assessing the financial strength of a company before investing in its stock is crucial to mitigate the risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. General Dynamics has a cash-to-debt ratio of 0.1, which is worse than 83.96% of 293 companies in the Aerospace & Defense industry. The overall financial strength of General Dynamics is 6 out of 10, indicating fair financial health.
Profitability and Growth of General Dynamics
Investing in profitable companies carries less risk, especially those with consistent profitability over the long term. A company with high profit margins often offers better performance potential than a company with low profit margins. General Dynamics has been profitable for 10 years over the past 10 years. In the past 12 months, the company had revenues of $40.90 billion and an EPS of $12.18. Its operating margin of 10.34% is better than 67.69% of 294 companies in the Aerospace & Defense industry. Overall, GuruFocus ranks General Dynamics's profitability as strong.
Growth is a crucial factor in the valuation of a company. Growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. General Dynamics's 3-year average revenue growth rate is worse than 54.92% of 264 companies in the Aerospace & Defense industry. General Dynamics's 3-year average EBITDA growth rate is 0.3%, which ranks worse than 52.61% of 230 companies in the Aerospace & Defense industry.
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, General Dynamics's ROIC is 7.83, and its cost of capital is 7.56.
Conclusion
Based on our analysis, General Dynamics (GD, Financial) stock is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 52.61% of 230 companies in the Aerospace & Defense industry. To learn more about General Dynamics stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
