GD General Dynamics
Submarine monopoly plus Gulfstream ramp: quality compounder, but price already reflects steady growth; roughly fair value.
The story
General Dynamics is a diversified defense prime (Marine Systems submarines, Combat Systems, Technologies/IT) plus Gulfstream business jets. Its moat rests on sole-source positions like Columbia/Virginia-class submarines and entrenched government relationships, along with Gulfstream's premium brand. The company is mature but in a growth upswing: a multi-decade submarine buildout, elevated global defense budgets, and the new Gulfstream G700/G800 ramp support high-single-digit growth for several years. After that it fades toward GDP-like growth.
Growth starts at 7%, below the 10% five-year CAGR, which was inflated by the Gulfstream new-model ramp. It fades as submarine throughput is limited by shipyard labor and supply chain. Margin improves only modestly, from 10.6% to 11%, because Marine margins remain thin under cost-plus/fixed-price mix while Aerospace recovers. Beta of 0.9 sits below the 1.2 anchor, reflecting government-backed cash flows, and the 8-year horizon matches the length of the submarine backlog visibility.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 8y |
| Target operating margin | 11.0% |
| Years to target margin | 4 |
| Sales-to-capital | 1.60 |
| Beta | 0.90 |
| Failure probability | 0.5% |
| Cost of capital (WACC) | 9.0% |
| Terminal WACC | 9.4% |
Valuation bridge
| PV of explicit FCFF | 22.51B |
| PV of terminal value | 49.77B |
| Equity value | 66.27B |
| ÷ shares → per share | $244.93 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 58.70B | 7.0% | 10.7% | 5.17B | 2.40B | 2.76B | 2.54B |
| 2 | 62.52B | 6.5% | 10.8% | 5.56B | 2.38B | 3.17B | 2.67B |
| 3 | 66.27B | 6.0% | 10.9% | 5.95B | 2.34B | 3.61B | 2.79B |
| 4 | 69.91B | 5.5% | 11.0% | 6.34B | 2.28B | 4.07B | 2.88B |
| 5 | 73.41B | 5.0% | 11.0% | 6.66B | 2.18B | 4.48B | 2.91B |
| 6 | 76.71B | 4.5% | 11.0% | 6.96B | 2.06B | 4.90B | 2.92B |
| 7 | 79.78B | 4.0% | 11.0% | 7.24B | 1.92B | 5.32B | 2.91B |
| 8 | 82.57B | 3.5% | 11.0% | 7.49B | 1.75B | 5.75B | 2.89B |
Key risks
- Submarine program cost overruns and shipyard labor shortages compress Marine margins
- US budget continuing resolutions or defense spending reprioritization
- Business jet demand cyclicality hitting Gulfstream deliveries and pricing
Catalysts
- Columbia-class production ramp and AUKUS-related submarine funding
- Gulfstream G800/G400 certification and delivery ramp lifting Aerospace margins