FW: General Dynamics (GD): G650 Interest Appears Overwhelming

·  Nearly 500 initial deposits already:  According to our contacts, we understand that initial customer interest in the G650 has been overwhelming with GD taking in nearly 500 refundable deposits ($500K) for the aircraft. From here, customers will proceed to contracting, which will require an additional $2.5M payment.

·  Indicates underlying strength of market:  Not all of the initial deposits will turn into actual orders as this kind of interest would drive extended delivery dates out through the end of next decade. Nonetheless, we believe this interest is an indication of the attractiveness of the G650 product as well as the still underlying strength of the bizjet market. We have not seen any meaningful increase in used inventory levels, which would indicate the market has slowed.

·  See significant guidance increase in Q2, post supplemental:  GD reports Q1 results tomorrow. While we think guidance moves up strongly once the supplemental is passed, most likely in June, we also think it is likely that GD aggressively repurchased stock in Q1, which could provide upside.

·  Valuation: $106 price target:  Our price target reflects our discounted cash flow analysis (10% WACC, 3% terminal growth rate).