Propelled by its Marine Systems Segment, General Dynamics (GD) reported extremely impressive second-quarter financial results on Aug. 5. The performance and outlook of the defense giant’s Aerospace and Combat Systems units are more mixed.
But given the firm’s surging backlog and orders, along with the generally upbeat prospects of the Marine business, GD stock is appealing for investors seeking increased exposure to large defense names.
Superb Q2 Results
In Q2, GD’s revenue jumped 8.9% versus the same period a year earlier to $13 billion, while its earnings per share soared 14.7% year-over-year to $3.74.
What’s more, the company’s backlog climbed 14% YOY to an all-time record of $103.7 billion, indicating that it will continue to report very strong financial results going forward. Also boding well for its future performance is the fact that its book-to-bill ratio came in at an extremely high 2.2 last quarter.
The latter metric contrasts the value of new orders obtained — bookings — with the amount for which customers have already been billed. Consequently, a high book-to-bill ratio indicates that a company’s revenue is set to surge a great deal in the future.
The Marine Business Is on Fire
General Dynamics is the top manufacturer of nuclear-powered submarines in the U.S. and one of the foremost developers of surface combat ships for the U.S. Navy. In 2024, the Marine Systems Segment generated 30% of GD’s overall sales. The firm reports that it “has been supplying nuclear-powered Virginia-class fast-attack submarines to the Navy for 20 years, and is the prime contractor for the Columbia-class ballistic missile submarine program—the nation’s top strategic defense priority—which will replace the aging Ohio class of ballistic missile submarines.”
Last quarter, the Marine unit’s revenue increased a huge 22.2% year-over-year to $4.22 billion, while its backlog climbed an impressive $14.6 billion to nearly $53 billion. The latter surge was driven by orders for new Virginia-class submarines, General Dynamics reported.
Also making the outlook very bullish for the firm’s Marine business is that in June the Pentagon awarded contracts to six companies “to expedite the construction of Virginia-class submarines.”
Also encouragingly, the Navy intends to shell out $130 billion on 12 Columbia submarines, although the massive vessels aren’t slated to start being used until 2031.
A Look at GD’s Aerospace Systems and Combat Units
Aerospace’s revenue increased a respectable 4.1% year-over-year in Q2, as the deliveries of its Gulfstream unit rose to 38 from 34 in Q2 of 2024.
However, CEO Phebe Novakovic stated that the company plans to deliver roughly three fewer G800 planes in 2025 than the number of G650 planes that it handed over in the second half of 2024 (but it’s worth noting that the deliveries of the G800 are expected to start during Q3). Moreover, the CEO suggested that the operating margins of the “initial G800s” will be lower than that of the G650. Novakovic said that “the G800 was designed to replace the G650” and reported that the firm had “made the final deliveries” of the G650.
However, the CEO indicated that the G800’s margins should increase a great deal going forward and noted that “there is significant interest in this plane from Fortune 500 companies.” She also pointed out that the Aerospace unit’s supply chain is rebounding, while the “delivery cadence and operating margin” of another one of the firm’s planes, the G700, “are both improving.” Consequently, there is a good chance that, in the medium-to-long-term, the performance of the G800 will be equal to or better than that of the G650.
Combat’s revenue was little changed in Q2 versus the same period a year earlier, but its operating profit did increase 3.5% year-over-year, while its book-to-bill ratio came in at a reasonable level of one.
But the unit’s new Executive Vice President, Jason Aiken, indicated that it was well-positioned to benefit from increased defense spending by European countries and noted that its book-to-bill ratio in Europe was a solid 1.5 times in the first half of 2025.
Valuation and the Bottom Line on GD Stock
The company’s forward price-earnings ratio is 20.5 times. Since analysts on average expect its earnings per share to jump to $15.23 in 2025 and $17.01 in 2026, versus $13.63 in 2024, its P/E ratio is quite attractive. Further, I believe that the Marine unit can continue to enable the company to report very strong financial results going forward.
In light of all of these points, GD appears to be an attractive name for those looking to buy one or more large defense stocks.
*This article is intended to be informational only; it is not financial advice.
