General Dynamics Earnings: Raising Our Fair Value 15% on Long-Term Conviction in the Franchise

General Dynamics reported first-quarter 2024 results, which included slippage of any G700 business jet revenue into later quarters because of the timing of Federal Aviation Administration certification of the plane. We did not alter our full-year forecast as we have every confidence the company will deliver the planes this year. In fact, we raised our fair value estimate to $300 per share from $260 entirely based on our conviction in this wide-moat firm's discipline and ability to reinvest for success year over year. We raised our estimate of the company's midcycle earnings growth to 6.5% from 4.5% and upped the quotient of those earnings we think the company can successfully compound internally to 22% from 17.5%, giving it a few years of historically consistent returns on capital before our model assumes competition will eventually erode economic profits 20 years hence.