Top Picks 2020: General Dynamics (GD)

01/10/2020 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

General Dynamics (GD) has grown both internally and through acquisitions since 1952 to become a market leader in the aerospace and defense industry, notes value investing expert Ingrid Hendershot, value-oriented money manager and editor of Hendershot Investments.

Under the capable leadership of Phebe Novakovic, appointed as the company’s CEO and chairwoman in 2013, each business unit is responsible for its strategy and operational performance while the lean staff at corporate headquarters sets the company's overall strategy and is responsible for allocating and deploying capital.

In 2018, 65% of General Dynamics’ revenue was from the U.S. government, 11% was from non-U.S. government customers and 24% was from commercial customers.

The company's sustained focus on continuous operational improvements has generated an exceptional 26.4% average return on shareholders’ equity during the past five years.

Net earnings have compounded at a 6% annual rate since 2014 with EPS growing at an even faster 9% pace due to the company’s share repurchase program.

The company's robust cash flow generation provides the fuel for share buybacks, dividends and a disciplined acquisition strategy to spur future profitable growth.

During the past three years, the company spent $5.3 billion on share repurchases, reducing its share count by about 8%. Since 2014, dividends have compounded at an 11% annual clip with the firm raising its dividend by 10% in 2019, marking the 22nd annual increase.

With profitable growth, exceptional returns on shareholders’ equity, robust free cash flow and disciplined capital deployment, General Dynamics is a high quality company. Investors seeking solid long-term returns should salute the General! We rate the stock a buy.

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