Like General Dynamics Stock? Deutsche Bank Explains Why You Might Want To

Courtesy of Benzinga.

In a report published Monday, Deutsche Bank analysts maintained a Buy rating on General Dynamics Corporation (NYSE: GD), with a price target of $166, saying that this was a “good time to revisit the bull thesis.”

The factors driving upside for the company’s stock this year are:

1) “the company’s backlog underwrites an inflection in growth in 2015 (with upside),
2) the margins both at Aero and IS&T are likely source of further upside to expectations,
3) the guidance is both benign (though we don’t expect a 1Q raise) at the segment level but also on share repo where no net share count reduction is baked into the forecast, and
4) valuation is now below both the market and the peer group.”

The analysts express their optimism regarding US defense spending for new weapons having entered “a modest positive inflection,” which may remain stable or accelerate from the current 3% level. Moreover, General Dynamics’ Aerospace unit, which contributes about 40% of earnings, has “the best product position among peers with growth and margin expansion still ahead,”

In the report Deutsche Bank noted, “There are general market concerns on the Gulfstream product transition, but we see those as missing the success of the transition the company has been making in the last few years and the proximity (2017) of the positive contribution of the new programs.”

General Dynamics’ stock is currently trading below the market multiple and is the “cheapest among all our defense names,” the analysts wrote, while adding, “Beyond current valuation, the company also continues to have ~1X of EBITDA less leverage than its (underlevered) defense peer group as it sits in a modest net cash position.”

With upside to revenues and margins, now seems to be a “good time” to “revisit the stock,” the analysts commented.

Posted-In: Deutsche BankAnalyst Color Reiteration Analyst Ratings