General Dynamics Corporation (GD)

Conclusion

General Dynamics builds business jets, nuclear-powered submarines and surface ships, land combat vehicles and defence technology services, reported through four segments: Aerospace, Marine Systems, Combat Systems and Technologies. At a price of 362.07 USD on 2026-11-09, the company has a market capitalisation of 97.8 billion USD.

The verdict is fair. The fair value band runs from 303.13 to 454.69 USD with a midpoint of 378.91 USD, giving a margin of safety of 4.7% at the current price. The price-to-earnings ratio of 21.0x is above its ten-year median of 18.9x, and enterprise value to EBITDA of 14.9x is above its median of 13.9x. Price to free cash flow of 16.9x is below its median of 20.0x. The DCF gives 420.72 USD per share, while the fair value from historical multiples is 337.09 USD. The reverse DCF implies growth of 3.7% a year, against revenue growth of 6.7% and free cash flow per share growth of 7.6% over five years.

What holds the case up is ROIC of 15.3% against a WACC of 8.5%, free cash flow conversion of 124.1% over the trailing twelve months, and an Altman Z-score of 4.28. What would weaken it is the price-to-earnings premium of 11.4% over its ten-year median, operating margin of 10.4% against a median of 10.9%, and gross margin of 15.4% against a median of 16.7%.

Financial health

Financial strength is green, held up by the Altman Z-score of 4.28, net debt to EBITDA of 0.67x, interest coverage of 26.3x and a current ratio of 1.43. The quick ratio of 0.84 and debt to equity of 0.33 are also at comfortable levels. The Altman Z-score sits in the safe zone; the model was designed for manufacturers, and General Dynamics is largely a manufacturer, so the reading is relevant. Insolvency risk: low, about 0.3% by the estimate of the Ohlson model over one to two years, based on year-end 2025 figures. The company is not a financial business, so these models apply. Net debt is modest relative to earnings, and the company's debt has fallen over five years, at a compound rate of minus 14.6% a year.

Earnings quality

Earnings quality is green. Free cash flow conversion is 124.1% over the trailing twelve months and 99.2% over five years, and the accrual ratio of minus 1.6% points to cash earnings. Stock-based compensation is 0.4% of revenue, and free cash flow after it is 5.56 billion USD. The share count fell by 1.0% a year over five years, which points to buybacks. The Piotroski score is 8 out of 9. The Beneish M-score is not available. Earnings beat expectations in all of the last eight quarters, by an average of 5.8%. Analysts raised current-year estimates by 2.3% over 90 days, and next-year estimates by 1.6%, with next-year earnings growth expected at 8.3%.

Profitability

Profitability is green. Operating margin of 10.4% is slightly below its ten-year median of 10.9%, and net margin of 8.2% is close to its median of 8.4%. Gross margin of 15.4% is below its median of 16.7%. ROIC of 15.3% against a WACC of 8.5% gives a ROIC minus WACC of 6.9%, so the business creates value above its cost of capital. ROIC has averaged 12.4% over five years. Return on equity of 17.1% is helped by leverage: the DuPont split shows a net margin of 8.0%, an asset turnover of 0.92 and an equity multiplier of 2.23, so asset-heavy financing lifts the headline figure.

Growth

Growth is green. Revenue has compounded at 10.1% over three years, 6.7% over five and 5.2% over ten. Earnings per share compounded at 8.0% over three years, 6.9% over five and 5.2% over ten. Free cash flow per share grew 5.1% over three years, 7.6% over five and 9.4% over ten. Revenue rose in eight of the last ten years. The growth in recent years is firmer than the ten-year record, and the outlook for next-year earnings growth is 8.3%.

Valuation

Valuation is yellow, because the verdict is fair and the margin of safety of 4.7% is only modest. The price-to-earnings ratio of 21.0x is 11.4% above its ten-year median of 18.9x, and enterprise value to EBITDA of 14.9x is 7.1% above its median of 13.9x. Price to sales of 1.73x is 7.6% above its median, while price to free cash flow of 16.9x is 15.4% below its median of 20.0x. The DCF gives 420.72 USD per share at a discount rate of 8.87%, with a terminal value share of 57.2%. The fair value from historical multiples is 337.09 USD. The fair value band runs from 303.13 to 454.69 USD. The reverse DCF implies growth of 3.7%, below the 6.7% revenue growth and 7.6% free cash flow per share growth delivered over five years. The dividend yield is 1.7% and the payout is 28.9% of free cash flow.

Risks

The main risk is that the premium on earnings multiples persists while growth slows. The price-to-earnings premium of 11.4% would be harder to justify if operating margin of 10.4% kept falling below its median of 10.9%. Gross margin of 15.4% against a median of 16.7% points to pressure on profitability. Return on equity relies on leverage, so a rise in debt would lift the headline figure while reducing the safety margin. The Beneish M-score is not available, so the risk of earnings manipulation cannot be measured here. The analysis has limits: no debt maturity schedule and no revenue by segment, so the risks of individual programmes cannot be assessed.