General Dynamics Corporation (GD)
Aeroespacial y defensa
Four defense and aerospace businesses with exceptionally wide moats—a virtually sole nuclear submarine shipbuilder, sole-source producer of the Abrams tank and Stryker vehicle, leading Gulfstream executive aircraft, and an IT services business—backed by a record backlog of $118,000 million and book-to-bill ratios above 1 in all segments. Yet at $377 (20× EBIT, near the 52-week high), the sum-of-the-parts valuation yields $448/share over five years (+4%/year on price, +5% with dividends): Fairly valued—an exceptional business that the market already prices at a demanding valuation.
- Price
- $376.60
- Intrinsic value (5y, base)
- $448
- Total annual return (5y)
- 5.4%
- Status (nominal)
- Fairly valued
- Margin of safety
- +4%
The essentials
- Four segments with very wide moats: Marine Systems is the virtually sole nuclear submarine shipbuilder for the U.S. Navy (backlog visible through 2034), Combat Systems is the sole-source producer of the Abrams tank and Stryker vehicle, and Aerospace leads in Gulfstream executive aircraft (more than 350 speed records, over 3,000 aircraft in service).
- Record backlog of $118,000 million at FY2025 close (+30% versus FY2024) and book-to-bill ratio above 1 in all four segments (1.2× in Aerospace, 1.6× in defense segments)—exceptional revenue visibility for years ahead, underpinned by multi-year U.S. government programs (~68% of revenue).
- But at $377 (near the 52-week high) the market already prices that quality: 20× EBIT. The sum-of-the-parts valuation yields $448/share over five years, a price CAGR of +4% and +5% with dividends: Fairly valued.
Intrinsic value — two valuation methods
Total return at 5 years: 5.4%/year = 3.5% appreciation + 1.9% dividend. The target price ($448) is ex-dividend; the $38 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $456 · Multiples $393) exceeds the market price ($377).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $377 trades ~4.1% below its value discounted to today (~$393); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($448) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$248.
Thesis
The business
General Dynamics brings together four businesses with exceptional moats: a virtually sole nuclear submarine shipbuilder, a sole-source producer of land combat vehicles, a leader in executive aircraft, and a defense IT services business. The record backlog ($118,000 million at FY2025 close, +30% year-over-year) and book-to-bill above 1 in all four segments provide unusually visible revenue for an industrial, backed by government programs spanning years to decades.
The valuation
The four segments are of different natures—capital-heavy defense manufacturing (Marine, Combat), a hybrid of manufacturing and services (Aerospace), and capital-light IT services (Technologies)—so they are valued separately: each with its EBIT projected five years out and its EV/EBIT multiple within the band for its nature (Aerospace higher for its brand franchise and recurring services; Marine and Combat lower for finer government contract margins despite an extraordinary moat; Technologies in line with a specialized-personnel business). The trajectory begins at actual historical performance (consolidated revenue +9.3% TTM) and decelerates smoothly to ~4.6% by year 5, with margins expanding modestly from the backlog scale. That yields $448/share over five years against $377 today → a price CAGR of +4%; with dividends (1.7%), +5% total.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The price, near the 52-week high, already incorporates much of the business' quality and backlog visibility: the total return +5% comes in below the method's 10% average profitability. The verdict is Fairly valued—the business has one of the widest moats in the industrial universe, but today's price leaves little additional margin.
What to watch
The central disconfirmer is the U.S. government budget cycle: a prolonged continuing resolution, government shutdown, or shift in defense spending priorities would delay or cut programs that currently support the backlog. Also watch the execution of fixed-price contracts (51% of government revenue), where a change in cost estimates directly impacts margin, and commercial demand for executive aircraft (Aerospace), which is more economically sensitive than the rest of the business. The termination of the M10 Booker in 2025 is a reminder that even the sole-source producer is not exempt from program cancellation risk.
Educational / informational. Does not constitute investment advice.