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Earnings Analysis: General Dynamics Corp. (NYSE:GD)

General Dynamics Corporation (NYSE:GD) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit

General Dynamics Corporation (NYSE:GD)

General Dynamics Corp.’s analysis versus peers uses the following peer-set: The Boeing Company (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), EADS NV (EPA:EAD), Raytheon Company (NYSE:RTN), BAE SYSTEMS PLC ORD (PINK:BAESF), Northrop Grumman Corporation (NYSE:NOC), Dassault Aviation SA (EPA:AM) and Rockwell Collins, Inc. (NYSE:COL). The table below shows the preliminary results along with the recent trend for revenues, net income and returns. Earlier today we published our Earnings Analysis for Lockheed Martin Corp. (LMT) based on the latest data,

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 7,934.0 7,922.0 7,579.0 9,147.0 7,853.0
Revenue Growth % 0.2 4.5 (17.1) 16.5 (0.3)
Net Income 600.0 634.0 564.0 603.0 665.0
Net Income Growth % (5.4) 12.4 (6.5) (9.3) (0.2)
Net Margin % 7.6 8.0 7.4 6.6 8.5
ROE % (Annualized) 17.2 18.4 16.7 18.0 19.3
ROA % (Annualized) 6.8 7.2 6.4 7.1 8.0

Valuation Drivers

General Dynamics Corp. trades at a lower Price/Book multiple (1.6) than its peer median (4.4). The market expects GD-US to grow at about the same rate as its chosen peers (PE of 9.7 compared to peer median of 10.5) and to maintain the peer median return (ROE of 17.2%) it currently generates.

The company’s asset efficiency (asset turns of 0.9x) and net profit margins of 7.4% are both median for its peer group. GD-US’s net margin is its lowest relative to the last five years and compares to a high of 8.5% in 2008.

Economic Moat

GD-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 0.6%) but its earnings have lagged (annual reported earnings have changed by -2.9% compared to the peer median of 9.6%), implying that the company has less control over its costs relative to its peers. GD-US is currently converting every 1% of change in revenue into -4.4% change in annual reported earnings.

GD-US’s current return on assets is around peer median (7.0% vs. peer median 7.0%). This contrasts with its higher than peer median return on assets over the past five years (8.3% vs. peer median 5.0%), suggesting that the company’s relative operating performance has declined.

The company’s comparatively low gross margins of 17.6% versus peer median of 23.7% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, GD-US’s pre-tax margin of 10.8% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

While GD-US’s revenues have grown faster than the peer median (3.7% vs. 2.4% respectively for the past three years), the market gives the stock an about peer median PE ratio of 9.7. This suggests that the market has some questions about the company’s long-term strategy.

GD-US’s annualized rate of change in capital of 6.8% over the past three years is greater than the peer median of 3.8%. However, this investment level has only generated a peer median return on capital of 15.7% averaged over the same three years. This median return on an above median capital investment suggests the company is overinvesting.

Earnings Quality

GD-US’s net income margin for the last twelve months is around the peer median (7.4% vs. peer median of 7.4%). This average margin and relatively conservative accrual policy (4.6% vs. peer median of 2.5%) suggests possible understatement of its reported net income.

GD-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for General Dynamics Corp. (NYSE:GD)
Graph of Revenues Trend for General Dynamics Corp. (NYSE:GD)
Graph of Net Margin Trend for General Dynamics Corp. (NYSE:GD)
Graph of Net Margin Trend for General Dynamics Corp. (NYSE:GD)
Graph of Accruals Trend (% revenues, Quarterly) for General Dynamics Corp. (NYSE:GD)
Graph of Accruals Trend (% revenues, Annual or TTM) for General Dynamics Corp. (NYSE:GD)

Company Profile

General Dynamics Corp. is an aerospace and defense company. It provides products and services in business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding and communications and information technology. The company operates through four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. The Aerospace group designs, manufactures and outfits a comprehensive family of gulfstream business. The Combat Systems group designs, develops and produces tracked and wheeled military vehicles, weapons systems and munitions. The Marine Systems group designs, builds and supports submarines and surface ships. The Information Systems and Technology group provides critical technologies, products and services. The company was founded on February 21, 1952 and is headquartered in Falls Church, VA.


The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website

This article was originally written by abha.dawesar, and posted on CapitalCube.

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