On Wednesday, General Dynamics Corp. (NYSE:GD) experienced a shift in stock rating as Wolfe Research adjusted its stance on the company. The defense contractor, currently trading at $270.43, was downgraded from Outperform to Peer Perform, reflecting concerns over reduced estimates in key business segments. According to InvestingPro data, analysts maintain a bullish consensus on GD with a mean target suggesting potential upside.
The downgrade comes after Wolfe Research revised its sales, earnings per share (EPS), and free cash flow (FCF) estimates for General Dynamics for the years 2025 and 2026. These estimates have been lowered by 2-7%, with the most significant downward adjustments observed in the Aerospace and Marine divisions.
Despite these lower projections, the firm acknowledged General Dynamics' strong potential in its business jet (bizjet) segment, though it also noted the lack of predictability in this area. The company has demonstrated solid performance with revenue growth of 11% in the last twelve months, reaching $46.05 billion, though its gross profit margin stands at 15.6%.
The Wolfe Research analysis pointed out that while defense sales growth is materializing, profit margins are under pressure, especially in the Marine segment. This financial strain has contributed to the company's difficulties in meeting guidance expectations, which has been a consistent issue over the year.
General Dynamics shares have risen 7% year-to-date, a modest increase compared to the 30%+ gains seen in the S&P 500 index. This performance is relatively aligned with other large-cap defense stocks. The analyst indicated that the company's challenges in adhering to guidance expectations have been a primary factor in the stock's underperformance throughout the year. These challenges may persist, potentially impacting the company's ability to achieve better performance in the stock market going forward.
In other recent news, General Dynamics Corp. has been the subject of several analytical revisions following its third-quarter earnings release. The company reported a significant 10.4% revenue increase, primarily driven by its Aerospace and Marine divisions. Despite a shortfall in G700 aircraft deliveries, General Dynamics expects a strong fourth quarter. Deutsche Bank (ETR:DBKGn) maintained a Hold rating on the company's stock, adjusting the price target to $303 due to weak Gulfstream deliveries.
Jefferies also lowered its price target for General Dynamics to $345, citing underperformance in the Aerospace sector and revised Marine margins, while Bernstein SocGen Group reduced its price target to $331 after the company's third-quarter results fell short of consensus estimates. Conversely, RBC Capital Markets raised its price target to $330, maintaining an Outperform rating, influenced by the company's robust 10% growth in total revenue for the quarter.
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