General Dynamics: Defense and Aerospace Giant Powers Ahead, But Valuation Questions Loom
Shares of defense and aerospace conglomerate General Dynamics (NYSE: GD) have been propelled by a powerful dual-engine thrust: a historic $109.9 billion order backlog in its defense units and a resurgent business jet cycle led by the Gulfstream G700. The stock, trading around $350, reflects this strength but also presents a valuation conundrum for market watchers.
Financial performance underscores the operational momentum. The company reported free cash flow of $3.0 billion for the first nine months of 2025, more than double the $1.39 billion from the same period a year earlier. This cash gusher fuels shareholder returns, including dividend growth and accelerated share buybacks, under the steady hand of CEO Phebe Novakovic.
Beyond the numbers, a potential structural shift is gaining attention. Dubbed the "Norway Signal" by some analysts, the potential easing of ESG (Environmental, Social, and Governance) restrictions on defense holdings in major investment funds could unlock a wave of new institutional capital into the sector, providing a long-term valuation floor for companies like GD.
Yet, the bullish narrative faces headwinds. Trading at approximately 20 times forward earnings, GD's valuation embeds high expectations. Analysts note the stock appears fully priced relative to peers like Lockheed Martin (LMT) and Northrop Grumman (NOC), assuming the current aerospace upcycle is sustained. Near-term risks include potential federal budget disruptions and sensitivity in luxury jet demand to economic conditions.
"GD is a textbook example of a fortress business firing on all cylinders," said Michael Thorne, a portfolio manager at Horizon Strategic Advisors. "The backlog is incredible, management is execution-focused, and the Norway dynamic is a real, if slow-moving, catalyst. But you're paying for perfection here. For new money, patience for a market dip is prudent."
Other observers are more critical. "The defense backlog is impressive, but it's also a multi-year promise, not an immediate windfall," argued Lisa Chen, a senior analyst at The Voltaire Group, known for her bearish takes on industrial valuations. "The market is extrapolating peak-cycle margins in aerospace indefinitely. When the economy eventually hiccups, that 20x multiple will contract faster than the backlog can protect it. This is a great company trapped in a bubble of its own success."
David Reeves, a retired engineer and long-term GD shareholder, offered a steadier perspective. "I've held through cycles. The beauty is in the diversification—when jets are down, submarines are up. The cash flow funds my dividend, and Novakovic has a proven track record of capital discipline. I'm not trading it; I'm owning it."
The investment case thus bifurcates: existing shareholders are encouraged to hold a high-quality industrial stalwart, while prospective buyers may find the risk/reward more compelling at a lower entry point, with analysts eyeing the $300 level as a potential area of greater value.