General Dynamics CorporationGDNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $479.23 per share(market-calibrated)

+31.4%

Upside to Fair Value

Current

$364.78

Pure Model

$500.13

Fair Value

$479.23

Bull Case

$599.41

Bear Case

$425.66

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.81%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $500.13.

What's Driving This Ratingfor GD

✓

CapEx already efficient

CapEx at 1.90% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 10.69% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $8.8B (12.24% margin).

→

Moderate revenue growth

Analyst consensus projects 4.11% revenue growth, fading to 2.25% by Year 10. Revenue reaches $72.1B (vs $52.5B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 68.74% indicates efficient cash generation. FCF reaches $6.9B by Year 10 (9.58% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.40

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.29%

Cost of Debt

Pre-tax Cost of Debt3.94%

Tax Rate17.50%

After-tax Cost of Debt3.25%

Equity Weight (E/V)90.96%

Debt Weight (D/V)9.04%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.96% × 6.29%) + (9.04% × 3.25%)

= 6.02%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$54.7B	$59.6B	$63.5B	$67.1B	$72.1B
EBIT	$5.8B	$6.4B	$6.8B	$7.7B	$8.8B
Tax	$1.0B	$1.1B	$1.2B	$1.4B	$1.5B
NOPAT	$4.8B	$5.3B	$5.6B	$6.4B	$7.3B
+ Depreciation	$926M	$1.0B	$1.1B	$1.1B	$1.2B
- Capex	$1.0B	$1.1B	$1.2B	$1.3B	$1.4B
- Δ NWC	$311M	$344M	$272M	$258M	$229M
Free Cash Flow	$4.4B	$4.8B	$5.2B	$6.0B	$6.9B
Discount Factor	0.943	0.839	0.747	0.664	0.558
Present Value	$4.2B	$4.0B	$3.9B	$4.0B	$3.9B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.9B

Terminal Growth Rate2.25%

WACC6.02%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$187.5B

PV of Terminal Value$104.6B

Exit Multiple Method

Year 10 EBITDA$10.0B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$180.9B

PV of Terminal Value$100.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$39.7B

PV of Terminal Value$104.6B

Enterprise Value$144.3B

(-) Net Debt$7.5B

Equity Value$136.8B

Shares Outstanding270M

Price per Share$507.02

Exit Multiple Method

PV of Projected FCFs$39.7B

PV of Terminal Value$100.8B

Enterprise Value$140.6B

(-) Net Debt$7.5B

Equity Value$133.1B

Shares Outstanding270M

Price per Share$493.24

Pure Model Fair Value

$500.13

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
4.02%	$677.91	$749.52	$786.34	$753.63	$722.44
5.02%	$543.74	$577.22	$622.81	$688.51	$722.44
6.02%	$457.99	$476.59	$500.13	$530.88	$572.74
7.02%	$396.45	$407.89	$421.74	$438.83	$460.46
8.02%	$349.08	$356.62	$365.47	$375.99	$388.73

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$425.66

16.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.50

Base Case

$500.13

37.1% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.40

Bull Case

$599.41

64.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.34

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.11%

Year 3 Revenue Growth4.16%

Year 5 Revenue Growth3.06%

Year 7 Revenue Growth2.74%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin10.69%

Terminal EBIT Margin13.00%

Tax Rate17.50%

Historical Capex / Rev1.90%

NWC / Revenue14.44%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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