Bernstein: General Dynamics beats third-quarter expectations; aerospace and shipbuilding drive target price increase

How much were earnings forecasts raised after the third-quarter beat?

General Dynamics reported third-quarter revenue of $14.57 billion, above the market consensus of $13.71 billion; diluted earnings per share were $4.49, above the consensus of $4.14. Aerospace, marine and technology revenue all exceeded consensus, while combat systems came in slightly below expectations.
The company raised its 2026 earnings-per-share guidance from $16.80–$16.90 to $17.20–$17.30, with revenue guidance of $56.5 billion–$56.8 billion. Bernstein raised its full-year GAAP earnings-per-share forecast from $17.35 to $17.70 on stronger-than-expected third-quarter results and a lower interest expense forecast.
Bernstein raised its target price from $365 to $386 and maintained its Market Perform rating. The target implies approximately 4% upside from the 30 October closing price of $372.59 listed in the report.

Aerospace revenue was $3.54 billion in the third quarter, 3.5% above market consensus; 40 Gulfstream aircraft were delivered during the quarter. The quarterly book-to-bill ratio was 140%, meaning new orders exceeded quarterly revenue. Bernstein believes the more significant current constraint is Gulfstream's ability to increase production.
The company maintained its expectation of delivering approximately 160 aircraft in 2026 and is targeting 200 deliveries in 2030. Existing personnel and facilities can support that level, but additional investment would be needed to significantly exceed 200 aircraft.
Bernstein expects margins to improve as production of the G700 and G800 matures. There will be a brief gap between the end of G280 production and the ramp-up of the G300. The company expects the G300 to be certified around the end of 2027, with deliveries starting thereafter; more large-cabin aircraft deliveries are expected to offset the impact.

Marine revenue was $4.96 billion in the third quarter, up 21% year over year, driven mainly by increased construction of Columbia-class and Virginia-class submarines. This quarter is the first to be compared with a period following last year's increase in labor rates, providing a clearer picture of changes in actual output.
Marine operating margin was 7.9% for the quarter, including a one-time cumulative profit adjustment related to the final delivery order for the Virginia-class Block IV. Management considers the mid-7% range an appropriate benchmark for the underlying margin excluding that benefit.
Large submarine contracts have bolstered the backlog, but shipbuilding orders are typically signed in concentrated batches. Further margin improvement depends on production efficiency, skilled labor and material flow; some complex components rely on a single supplier, and considerable work remains to meet the U.S. Navy's annual submarine delivery targets.

Combat systems revenue rose 6% year over year in the third quarter, driven by munitions and the European land systems business, but was 1.4% below market consensus. Operating margin was 13.8%, down 1.1 percentage points year over year, as land systems shifted from mature production programs to research and development for new programs.
Bernstein expects combat systems margin to rise to 14.3% as international sales increase in the fourth quarter; however, reduced production of mature vehicles such as the Abrams and Stryker, while next-generation vehicles are still in development, will create near-term pressure.
In the technology business, C5ISR, which covers communications, command and intelligence, grew 11% in the first three quarters of the year, faster than GDIT's 4%. Bernstein believes the former has a higher margin and that continued faster growth would help gradually lift the segment's margin.