Jefferies has upgraded General Dynamics to a Buy recommendation from Hold and increased its price target to $400 from $380, arguing the defense contractor is positioned for improved earnings as submarine demand accelerates and shipyard productivity rises.
The brokerage pointed to General Dynamics' Marine Systems business - which represents roughly one third of company revenue - as a primary driver of the more optimistic outlook. Jefferies noted Marine Systems' first-quarter sales rose 21% year-over-year, a pace that outstrips the company's own full-year guidance of 3% to 6% growth.
Jefferies said upside for the division should come from three main areas as production ramps on the Virginia-class and Columbia-class submarine programs: a growing submarine backlog, improving labor productivity and margin expansion. Those factors are expected to lift performance as work on nuclear submarines intensifies.
The broker's stance is supported by the U.S. Navy's shipbuilding plan, which Jefferies highlighted for including $125 billion of submarine procurement funding between fiscal 2027 and 2031. In addition to procurement dollars, the plan allocates billions for shipyard modernization, workforce development and productivity improvements - all measures that Jefferies says underpin a production profile that could reach one Columbia-class and two Virginia-class submarines per year.
General Dynamics has already invested in its Electric Boat shipyard, putting more than $4 billion into the facility over the past decade, and it plans to invest an additional $4 billion over the next five years while expanding its workforce. The company expects to hire more than 8,000 employees in 2026 to support the increased submarine production cadence.
Jefferies' financial modeling calls for Marine Systems revenue to grow at a compound annual rate of 6% through 2028, driven primarily by nuclear submarine work. The brokerage also projects operating margins for the division to improve from 7.0% in 2025 to 7.5% in 2026 and to 7.8% by 2028 as productivity gains materialize.
Beyond Marine Systems, Jefferies flagged continuing strength in Gulfstream business jet deliveries and the potential for enhanced shareholder returns. The firm estimated General Dynamics could generate roughly $3 billion of discretionary free cash flow after dividends in 2027.
Shares of General Dynamics closed at $341.07 prior to the Jefferies report, which implies approximately 17% upside to the new $400 target price.