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'Greatest Peacetime' Era In Decades Prompts Credit Suisse To Downgrade General Dynamics

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'Greatest Peacetime' Era In Decades Prompts Credit Suisse To Downgrade General Dynamics

Aerospace and defense company General Dynamics Corporation (NYSE: GD), perhaps best known for its F-16 fighter jet, is expected to lag its peers in 2019 amid the "greatest peactime defense upcycle" since the Reagan administration, according to Credit Suisse.

The Analyst

Credit Suisse's Robert Spingarn downgraded General Dynamics from Outperform to Neutral with a price target lowered from $190 to $184.

The Thesis

General Dynamics guided its defense business to show a topline growth of just 3.5 percent in 2019, while EBIT growth of around 1 percent is expected, Spingarn said in the Friday downgrade note.

Beyond the current year, the company's defense business is projected to post the weakest compounded annual revenue growth rate among its peers at 4.6 percent and segment EBIT growth of 4.4 percent over the same time period, the analyst said. 

General Dynamics' 2018 acquisition of IT services giant CSRA isn't likely to be accretive to the aerospace company's earnings as previously expected, Spingarn said. 

The deal is expected to be just 0.9-percent accretive to 2019 earnings and 2.1 percent in 2020. The company could have used the $9.75 billion it spent on the acquisition to buyback its stock, a move that would have been 8.5-percent accretive to earnings in the first year, the analyst said. 

Credit Suisse's revised $184 price target is based on a 15-percent valuation discount versus its peers at 14.25 times 2020 estimated EPS.

While the company is likely to justify a higher multiple over time, it would likely require encouraging updates related to multiple headwinds, Spingarn said, adding that this is unlikely in the near-term. 

Price Action

General Dynamics shares were up 1.27 percent at $174.33 at the time of publication Friday. 

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U.S. Air Force photo by Senior Airman Jordan Castelan. 

Latest Ratings for GD

DateFirmActionFromTo
Feb 2019Credit SuisseDowngradesOutperformNeutral
Jan 2019ArgusDowngradesBuyHold
Jan 2019CitigroupMaintainsNeutralNeutral

View More Analyst Ratings for GD
View the Latest Analyst Ratings

Posted-In: Credit Suisse defense defense stocks Robert SpingarnAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

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