We initiate on GD with a Buy rating and a $324 PT. GD is a leading global aerospace/defense prime contractor across business jets, next-gen submarines, land combat, and IT solutions.
Our Buy thesis is rooted in our above-consensus EBITDA forecasts of $6.8bn/$7.55bn for FY25E/FY26E, with catalysts hiding in plain sight: The street models fail to capture both the upcoming mix-lift on >150 G700/G800 deliveries in FY25E (100bps Aerospace margin) and ~70bps of Marine Systems margin accretion as the Virginia-class reprices and Block VI award incentives kick.
The question facing investors: Can GD's earnings power structurally reset against fiscal risk and cyclical business jet softness? Our answer is a resounding yes, which underpins our 11.5x forward EBITDA multiple, below recent highs and peer medians, capturing margin upside as well as macro, with the important qualifier that we see this as largely neutralizing earnings momentum offsetting fiscal/rate headwinds, with business jet cyclicality and US budget caps as the relevant risk.
Overall, we view the R/R positively, with GD's margin inflection and earnings leverage justifying our Buy rating and our $324 PT, which we see offering investors attractive upside from here.
Virginia-class Repricing: The Margin Reset Taking Shape in Marine Systems
The engine runs as follows: GD’s Aerospace segment is entering a meaningful margin expansion cycle as high-value Gulfstream G700/G800 jets — the latter newly FAA & EASA type certified — ramp from launch into delivery.