General Dynamics is an expensive stock, Stan Wong says

It was a solid slew of earnings this quarter from the defense stocks, with General Dynamics (General Dynamics Stock Quote, Chart, News NYSE:GD) showing the way by beating estimates with strong growth in its aerospace division.

That’s still not enough to impress Stan Wong of Scotia Wealth, however, who says that compared to the rest in the space, GD is a little pricey.

“The defense and military sector is an interesting space,” said Wong, director of wealth management at Scotia Wealth, who spoke to BNN Bloomberg on Thursday. “It jumped up a little bit earlier this month with the Iran-US conflict.”

“I don’t actually have any names in this particular area but I would argue that when you look at some of the names out there, something like a Lockheed Martin might be a little less expensive than General Dynamics,” he said. “If you look at the stock it hasn’t really performed as well as the other names like Raytheon or Lockheed Martin. Even from a valuation basis, I like those names a bit better.”

The bumper crop of quarterly reports featured earnings beats from Raytheon, Northrop Grumman, Lockheed Martin as well as General Dynamics, which on Wednesday delivered its fourth quarter featuring an 8.4 per cent uptick in sales from its business jet segment.

The company’s net earnings climbed to $1.02 billion from $909 million a year prior, or $3.51 per share. On average, analysts had been expecting a profit of $3.44 per share. (All figures in US dollars.)

“We continue to improve performance and focus on lines of business that will deliver value for our customers and sustained superior results for our shareholders,” said Phebe N. Novakovic, chairman and CEO in a press release. “Our fourth-quarter and full-year performance, coupled with strong order intake, leaves us well positioned to create enduring value.”

The fifth-largest defense contractor in the US, General Dynamics has segments in aerospace, combat systems, information technology, marine systems and mission systems. All five divisions grew their top and bottom lines in 2019. GD’s fourth quarter revenue was $10.8 billion, with the full year top line ending up at $39.4 billion and 2019 earnings hit $3.5 billion.

Last month, GD was awarded the largest-ever shipbuilding contract from the US Navy in a $22.2-billion contract to build nine nuclear-powered Virginia-class submarines.

The year ahead is expected to be another good one in the weapons and defense industry as the United States has once again upped its budget in 2020, calling for $738 billion in military spending, roughly $20 billion above last year’s total.

General Dynamics’ share price hit an all-time high of $230.00 back in March of 2018 but followed that up with a down year for 2018 and a more positive 2019, finishing last year up 12 per cent. In 2018, General Dynamics made a big play in the tech field by purchasing IT services giant CSRA for $9.7 billion. At the time, CSRA was the 39th-largest defense contractor in the US.