GENERAL DYNAMICS CORP (GD) stock intrinsic value fair value estimate & owner earnings analysis

General Dynamics has four businesses. Marine Systems (Electric Boat, Bath Iron Works, NASSCO) is the lead designer and builder of U.S. Navy nuclear submarines: the 12-boat Columbia-class ballistic-missile submarine program, valued by the Navy at over $125 billion with construction spanning two decades and the first boat due in 2028, plus 14 Virginia-class attack submarines in backlog for delivery through 2034 and 11 DDG-51 destroyers through 2032. Combat Systems builds Abrams tanks, Stryker and other combat vehicles and munitions. Technologies (GDIT and Mission Systems) sells IT and electronics to the U.S. government. Aerospace (Gulfstream business jets and aircraft services) is about a quarter of revenue and the cyclical part of the company; it delivered 158 aircraft in 2025, up from 136, as the G700 and G800 entered service. Total backlog was $118 billion at the end of 2025, up from $90.6 billion a year earlier, with about 35% expected to turn into revenue within 12 months. How we measure earnings. We start from reported operating cash flow and remove working-capital swings, because customer advances and inventory builds make GD's cash flow lurch (for example, customer advances added $2.4 billion of cash in 2023). We charge stock compensation as a cost, and we deduct only the capital spending needed to sustain the business, not the extra spent to grow submarine and Gulfstream capacity. Because GD carries debt, we then add back the roughly $380 million a year of interest it pays to see what the whole business earns before its lenders, and subtract the debt at the end. On that basis the business produced about $11.84 to $13.48 per share each year from 2019 to 2023, $15.03 in 2024 and $17.29 in 2025. We do not take 2025 at face value: cash taxes ran well below book taxes (a deferred tax provision of $256 million in 2025 and $286 million in the first quarter of 2026 alone), which we treat as a timing benefit rather than lasting earning power. Intangible amortization of about $174 million a year, largely from past acquisitions such as CSRA in 2018, is added back; it is small relative to earnings, and the risk of losing GDIT contracts at recompete is carried in the bear case rather than by cutting the earnings level. Starting point. We use $15.00 per share, the median of 2023 to 2025, the period that reflects the business as it now stands, with Gulfstream's new aircraft in service and Columbia-class construction under way. Earlier years were held down by the pandemic and by G700 certification delays. Business cash flow grew 15% in 2025 as reported, or about 5% excluding the tax timing benefit; the base case assumes 5% in its first year. Base case ($327 per share): business cash flow grows 5% a year for five years as the contracted submarine, destroyer, vehicle and aircraft backlog is delivered (the company reported backlog of $136.5 billion at mid-2026 and second-quarter 2026 revenue up about 8%), then 3% a year for five years while the Columbia and Virginia programs run on their scheduled build rates. After year 10 we assume no growth, only that earnings hold at about $22 per share. The reason they should hold is structural: Electric Boat is one of only two U.S. nuclear submarine builders and leads the design, and the Navy's submarine programs run for decades. The business is worth about $95 billion; net debt is about $5.0 billion, leaving about $90 billion for shareholders. Bear case ($231 per share): a business-jet downturn like 2020, when business cash flow per share fell about 12%, together with supply-chain and labor pressure on shipbuilding margins, pushes business cash flow down to about $13 per share for two years. That is roughly the 2019 to 2025 median. Growth then runs at only 2% a year on defense backlog, and earnings hold flat after year 10. The business is worth about $68 billion against the same $5.0 billion of net debt, leaving about $63 billion. Bull case ($395 per share): starting from the 2025 level after removing the tax timing benefit (about $15.90), cash flow grows 7% a year for five years as the record backlog converts and Gulfstream's new models reach full production, then 4% a year for five years, and holds flat after that. The business is worth about $113 billion, leaving about $108 billion after debt. Debt. GD owes about $8.0 billion of fixed-rate notes with coupons of 2.25% to 4.95% and maturities from 2026 to 2050. It held $3.65 billion of cash at April 5, 2026; we treat $1.5 billion as needed to run the business, because part of it is customer deposits. Because most of the debt is locked in at rates well below 6% for many years, its economic cost is about $0.8 billion less than its face value, so net debt comes to about $5.0 billion, or $18 per share. $1.0 billion of notes matured in June and August 2026, and the company planned to refinance them. Interest of about $380 million is covered roughly nine times or more by business cash flow even in the bear case, so refinancing is not a material risk. What could make this wrong. More than half of the value in each case comes from beyond year 10, so the estimate depends on the U.S. Navy continuing to buy submarines at roughly today's pace. Large fixed-price or delayed ship and vehicle programs could produce charges. Gulfstream demand depends on corporate and wealthy buyers and can fall quickly. Change since our previous estimate (August 2026: $111 bear, $217 base, $301 bull). We now discount every company's future cash at a fixed 6% and reflect risk through the gap between the cases; the earlier estimate used 10% to 11%, and this is the main reason the values are higher. We also now value the business before its lenders and subtract its debt, remove working-capital swings from the earnings base, and assume no growth after year 10 where the earlier estimate assumed 2.5% growth forever. Those changes pull the values down and partly offset the lower discount rate.