jet cloud landing aircraft

Is General Dynamics Corporation (NYSE:GD) Cheap at 13.42x Price To Earnings?

in INVESTING IDEAS by

General Dynamics Corporation (NYSE:GD) is currently trading at $151.31, at approximately 78.5% of its 52-week high of $190.08. With the stock price down -15.5% in the last year, it looks like the company is getting cheap. So, is General Dynamics Corporation undervalued? In this article, we’ll discuss General Dynamics Corporation’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering General Dynamics Corporation’s latest twelve months revenue/share of $133.48 and using the company’s 5-year average price to sales of 1.54x as a benchmark, we have a fair value of $205.61, which is 35.9% higher than the current price.

With no surprise, we can see that General Dynamics Corporation’s price to sales of 1.1x is much lower than its 5-year average of 1.5x, indicating that the company is probably trading at a discount to its fair value. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart’s Engine

Absolute Valuation: General Dynamics Corporation DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze General Dynamics Corporation with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 2.8%, an average EBITDA margin forecast of 13.7%, a discount rate of 8.0%, and a terminal EBITDA multiple of 11.5x, we get a fair value of $188.1.

So, Is General Dynamics Corporation Undervalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, General Dynamics Corporation’s fair value is $181.87, representing a 21.6% upside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: General Dynamics Corporation

General Dynamics Corporation operates as an aerospace and defense company worldwide. It operates through five segments: Aerospace, Combat Systems, Information Technology, Mission Systems, and Marine Systems. The Aerospace segment designs, manufactures, and supports business-jet aircraft; and offers business-aviation services, including maintenance, fixed-base operation, government fleet, aircraft management, charter, and staffing services. The Combat Systems segment engages in the design, development, production, modernization, and sustainment of combat vehicles, weapons systems, and munitions. This segment offers wheeled combat and tactical vehicles; main battle tanks and tracked combat vehicles; weapons systems, armaments, and munitions; and maintenance, logistics support, and sustainment services. The Information Technology segment provides information technology (IT), IT infrastructure modernization, and professional services, as well as cloud, cyber, software development, systems engineering, and data analytics services and solutions. The Mission Systems segment offers mission-critical C4ISR products and systems, such as space, intelligence, and cyber systems; ground systems and products; and naval, air, and electronic systems. The Marine Systems segment designs and builds nuclear-powered submarines, surface combatants, and auxiliary and combat-logistics ships for the United States Navy and Jones Act ships for commercial customers. This segment provides nuclear-powered submarines; surface combatants; auxiliary and combat-logistics ships; commercial product carriers and containerships; design and engineering support services; and maintenance, modernization, and lifecycle support services, as well as repair services for navy ships. The company was founded in 1899 and is headquartered in Reston, Virginia.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.