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Bernstein Upgrades General Dynamics To Outperform, Expects Minimal Downside As Risks Are Priced In

Shares of General Dynamics Corporation GD 1.95% are trading at a meaningful discount to closest peers and already price in gulfstream risk, Bernstein’s Douglas S. Harned said in a report. He upgraded the rating on the company to Outperform, while raising the price target from $168 to $180.

Discount To Peers

General Dynamics’s share price reflects “a larger discount to other defense primes” than has been seen in the last 14 years. Although the large cabin business jet market continues to be soft, the company’s shares already seem to price in “a highly pessimistic scenario,” analyst Harned noted.

Defense Business To Grow

“The company's defense business should grow from here with a rising defense budget that supports Marine Systems and Combat Systems, plus export-driven growth. IS&T has held up better than our expectations with solid backlog and margin performance,” Harned noted.

Known Challenges

The Gulfstream's challenges are significant, with the weakening of large cabin backlogs and the rise in used inventory on the market. Moreover, the transition to the G500/600 implies risks to schedule and margins. The analyst added, however, that these risks were already well known.

Taking into account General Dynamics’s low share price, the long-term upside at Gulfstream and the positive defense trajectory, the company’s stock appears attractive, Harned commented.

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Aug 2016BernsteinUpgradesMarket PerformOutperform
Aug 2016Argus ResearchMaintainsBuy
May 2016Goldman SachsMaintainsNeutral

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