BTIG Downgrades General Dynamics Amid Gulfstream Supply Chain Woes
Thursday, Feb 13, 2025 1:11 pm ET

BTIG has downgraded General Dynamics Corporation (NYSE: GD) to 'Neutral' from 'Buy' due to persistent supply chain issues and certification delays at its Gulfstream business jet division. The brokerage firm cited weaker-than-expected Gulfstream deliveries and concerns about free cash flow conversion as reasons for the downgrade.
In the fourth quarter of 2024, Gulfstream delivered only 15 G700 jets, well below the company's forecast of 27. Certification delays and supply chain bottlenecks have impeded production and deliveries, with BTIG now expecting GD to reach 167 total aircraft deliveries only by 2027, instead of 2025.
Marine Systems, another key segment for GD, continues to face margin pressure despite robust sales growth. Supply chain challenges and rising labor costs have weighed on profitability, while free cash flow conversion is projected at 80-85% for 2025, short of GD's ~100% target.
BTIG's valuation model assumes a 12.3% discount rate and a terminal growth rate of 2%, leading to a price target implying a 13x multiple on GD's estimated 2026 EBITDA. While defense spending growth and aerospace sales provide some upside, the lack of a clear catalyst prompted the downgrade.
General Dynamics' stock price has been volatile in recent months, reflecting investor concerns about the company's ability to navigate supply chain disruptions and certification delays. The stock is currently trading at around $251.03, down from its 52-week high of $316.90.

In conclusion, BTIG's downgrade of General Dynamics highlights the challenges the company faces in its Gulfstream business jet division and Marine Systems segment. Investors should closely monitor the company's progress in addressing these issues and the potential impact on its financial performance. Despite the downgrade, General Dynamics remains a well-diversified aerospace and defense company with significant growth opportunities in its various segments.