Falls Church, Va.-based global aerospace and defense company General Dynamics Corporation (GD) offers a diverse product and service portfolio that includes business aviation, shipbuilding and maintenance, ground combat vehicles, weapons systems and ammunition, and technology products and services.

The company's shares have gained 34.8% in price over the past year and 8.4% over the past six months, based on robust combat vehicle sales to international clients and a significant increase in new information technology initiatives.

In addition, rising defense budgets by governments globally and increased investments in the production of new technologies to meet military demands could propel GD's growth.

Here is what could shape GD's performance in the near term:

Positive Developments

Last month, General Dynamics Information Technology (GDIT), a business unit of GD, was awarded a $518 million task order from the United States Army Communications-Electronics Command (CECOM) to provide logistics, sustainment, and maintenance services for joint U.S. and coalition forces worldwide within the Army Field Support Brigade (AFSB) regions.

Also, last November, the Division was granted a $190 million contract from the United States Patent and Trademark Office (USPTO) for corporate cloud modernization. GDIT will supply a scalable, hybrid multi-cloud platform to upgrade the USPTO's IT infrastructure under this contract.

Strong Profitability

GD's 8.5% trailing-12-months net income margin is 31.1% higher than the 6.5% industry average. Also, its ROC, levered FCF margin, and ROA are  32.9%, 58.4%, and 26.1% higher than their respective industry averages. Furthermore, its $4.27 billion in cash from operations is 1952.4% higher than the $208.1 million industry average.

Impressive Growth Prospects

The Street expects GD's revenues and EPS to rise 2.3% and 4.9%m respectively, year-over-year to $39.34 billion and $12.12 in its fiscal 2022. In addition, GD's EPS is expected to rise at a 10.9% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history: it topped Street EPS estimates in each of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Of the eight Wall Street analysts that rated GD, five rated it Buy, and three rated it Hold. The 12-month median price target of $233.29 indicates a 9.9% potential upside. The price targets range from a low of $215.00 to a high of $245.00.

POWR Ratings Reflect Solid Prospects

GD has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GD has a B grade for Stability, which is justified given the stock's lower volatility than its peers.

Among the 74 stocks in the Air/Defense Services industry, GD is ranked #12.

Beyond what I stated above, we have graded GD for Growth, Value, Quality, Sentiment, and Momentum. Get all GD ratings here.

Bottom Line

Better-than-expected operating performance, along with strategic contracts with the United States government, should help GD achieve  robust growth in the coming months. In addition, the stock is currently trading above its 50-day and 200-day moving averages of $205.74 and $198.11, respectively. Moreover, given its strong profitability and the impressive growth prospects, we think the stock could be a great bet now.

How Does General Dynamics Corporation (GD) Stack Up Against its Peers?

GD has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Air/Defense Services industry with B (Buy) ratings: Moog Inc. (MOG.A), Lockheed Martin Corp. (LMT), and Brady Corporation (BRC).

GD shares were unchanged in premarket trading Monday. Year-to-date, GD has gained 2.41%, versus a -5.53% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...