Jefferies has reaffirmed its Hold recommendation on General Dynamics, assigning a $385 price objective - about 11% above the stock's prevailing market price of $351.06. The firm’s research review indicates the shares are trading near fair value when measured against its internal benchmarks.
In an analysis of the company’s annual 10-K filing, Jefferies called out several margin developments within the Aerospace segment. Aerospace Manufacturing margins expanded by 30 basis points to 12.3%, a gain Jefferies attributes to improvements tied to the G700 program. That gain was partially offset by trade dilution from the G800 and G650 models, which the firm says trimmed Aerospace margins by roughly 100 basis points.
Separately, corporate-level metrics show a gross profit margin of 15.13%, a figure Jefferies used to corroborate what their research framed as a relatively weak margin profile for the company.
Backlog dynamics were a focal point of the note. General Dynamics’ Aerospace backlog rose 11% year-over-year and the company reported a book-to-bill ratio of 1.2X in the segment. Jefferies’ breakdown of order geography shows a higher concentration of U.S. customers in the near-term book - 68% of 2025 orders are domestic versus 54% in 2024 - which has implications for revenue mix and program risk.
On the defense side, Jefferies identified a 36% expansion in the overall defense backlog with a 1.6X book-to-bill ratio, a surge the firm links primarily to long-term Marine contracts. The firm also flagged changes in estimated completion costs - an increase of $160 million - which Jefferies quantifies as exerting a 40 basis point drag, compared with a 10 basis point increase in reported margins. These backlog gains have coincided with meaningful market performance: General Dynamics returned 40.69% in price over the past year, though valuation metrics such as a price-to-earnings ratio of 22.52 and a PEG of 1.71 suggest the stock is trading at a premium relative to its growth trajectory.
Jefferies’ free cash flow outlook incorporates a planned $450 million liquidation of inventory in 2025, and the firm notes customer advances and deposits are forecast to decrease by $4 million. Taken together, these cash flow assumptions are part of the broader analyst assessment of balance sheet and working capital dynamics.
Financial performance in the most recent quarter reinforced operational strength. General Dynamics reported fourth-quarter 2025 earnings per share of $4.17, outpacing the $4.11 consensus estimate cited by analysts. Revenue for the quarter reached $14.38 billion versus an expected $13.78 billion. Despite the better-than-expected results on both EPS and top line, the shares declined in pre-market trading following the release. Jefferies noted that the company’s earnings call provided further operational and outlook commentary for investors to consider.
Investor considerations
- Valuation - The shares reflect a premium multiple relative to recent growth measures, which may temper upside given the Hold stance.
- Backlog strength - Growth in Aerospace and Defense backlogs, particularly Marine contracts, supports revenue visibility but carries program execution and cost completion risk.
- Cash flow mechanics - The planned inventory liquidation and modest decline in customer advances figure into free cash flow projections and working capital assumptions for 2025.
Conclusion
Jefferies’ note paints a mixed picture: solid backlog expansion and a quarterly beat on earnings and revenue contrasted with margin pressures in Aerospace stemming from model mix and estimated cost increases on certain programs. The firm’s $385 target and Hold rating reflect those trade-offs, leaving the stock positioned near what the analyst team considers fair value at current prices.