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General Dynamics Propelled by Corporate Jet Unit

NEW YORK (TheStreet) -- When you think of General Dynamics (GD - Get Report) you probably think of a defense contractor known for its combat systems and weaponry sales. It may surprise you that a major driver of the company's earnings and share growth has nothing to do with either.

The Falls Church, Va., company, founded in 1899, knows the boom-and-bust cycles of government defense contract cutbacks. Its Combat Systems group, which offers tracked and wheeled military vehicles, weapons systems, and munitions, has felt the brunt of the latest round of defense budget cuts.

But its hottest division is the one that sells jets to wealthy clients, who often are willing to pay more than the list price for the aircraft they want. According to Bloomberg Businessweek, the average waiting time for delivery of a nearly $65 million Gulfstream G650, the most coveted plane of General Dynamic's Gulfstream Aerospace unit, is nearly four years.

From this analyst's vantage point, this phenomenon is one of the reasons shares of GD are up about 16% since the first trading day of 2014 when the shares closed at $94.75. As of Tuesday the stock traded as high as $109.67 and shares are up nearly 15% for the year to date.

At the end of 2013 the company had an order backlog of Gulfstream business jets of nearly $14 billion and I expect it increased by the end of the first quarter of 2014. That should offer an updraft when the company reports its earnings for the quarter during the week of April 21.

The analyst community has modest expectations for earnings per share (EPS) and revenue for the quarter ending March 31. According to Yahoo! Finance, they look for a 1-cent improvement in EPS to $1.63 and a 2.8% decrease in revenue to $7.2 billion. My sense is there's a chance of an upside surprise in both categories, which may goose the price of General Dynamic shares towards the 52-week high of $113.57.

It's no surprise the one-year chart of the stock looks like the takeoff trajectory of a G650 propelled by its powerful Rolls-Royce engines. Notice the momentum of General Dynamic's quarterly revenue per share growth through the end of 2013.

GD Chart

GD data by YCharts

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