Buy General Dynamics Stock. But Not for Defense, Says This Wall Street Analyst.

General Dynamics makes Gulfstream jets. Coming into Monday trading, General Dynamics’ stock was up 33% this year. (JOHN THYS/AFP via Getty Images)

Key Points

• Vertical Research Partners upgraded General Dynamics stock to Buy from Hold, raising the price target to $400 from $330.
• General Dynamics’ third-quarter business jet sales increased 30%, with orders 30% higher than sales.
• General Dynamics stock trades at 20 times estimated earnings, a discount compared to defense peers averaging 22 times.

General Dynamics isn’t all about tanks and submarines. Investors need to pay attention to business jets, too. Strength in the latter business was enough for one analyst to upgrade shares to Buy.

Monday, Vertical Research Partners analyst Rob Stallard raised his rating on General Dynamics stock to Buy from Hold. His price target went to $400 from $330 a share.

Shares added 0.9%, closing at $353.77, while the S&P 500 and Dow Jones Industrial Average gained 1.2% and 0.7%, respectively.

“What has largely held us back from recommending General Dynamics has been the flat demand environment in bizjet,” wrote Stallard. In the company’s third-quarter results released on Friday, however, business jets posted 30% sales growth, and orders were 30% higher than sales.

General Dynamics’ third-quarter aerospace sales amounted to $3.2 billion, up from $2.5 billion a year ago, accounting for about 25% of total sales.

That means business jet demand is stronger than Stallard expected. “With Combat and Marine in good shape, and General Dynamics trading at a discount to its defense peers, we think this is a good point to upgrade.”

General Dynamics stock trades for about 20 times estimated earnings. Shares of other large defense contractors, including Northrop Grumman and L3Harris Technologies , trade for closer to 22 times on average.

With the upgrade, 52% of analysts covering the General Dynamics stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for shares is about $368 apiece.

Along with the upgrade, a handful of analysts raised their target prices after Friday’s third-quarter earnings report. Susquehanna raised its General Dynamics share price target to $406 from $365, and kept a Buy rating on the stock. UBS raised its price target to $381 from $369, and kept a Hold rating on shares.

Coming into Monday trading, General Dynamics’ stock was up about 33% this year and up about 16% over the past 12 months.

Write to Al Root at allen.root@dowjones.com