When you're right, you're right, and this week, the clever bankers at Citigroup (NYSE: C) are looking very right indeed about General Dynamics (NYSE: GD).

As you may recall, earlier this month Citi's analysts climbed out on a limb to upgrade General D's shares, arguing that the maker of everything from Abrams battle tanks to Gulfstream business jets was about to collect a windfall from the latter. In so doing, Citi played prologue to comments Goldman Sachs (NYSE: GS) would later make when upgrading Embraer (NYSE: ERJ). It also boldly contradicted assertions in The Wall Street Journal that, even if industrywide business jet sales in 2010 exceeded 2009's anemic levels, they were unlikely to revisit the levels of 2008 for many years to come. Whether that's the way things play out, in the short term at least, the bankers seem to have called this one right.

Or did they?
According to General D's Q4 earnings report, operating profits at Gulfstream leapt 26% in comparison to Q4 2009. But if you look closely at the numbers, you may find yourself underwhelmed at the sales improvement that led to the rise in profits. In Q4, it turns out, Gulfstream delivered all of three planes more than it delivered in Q4 2009, a mere 7% rise in unit sales, and revenues.

What's more, this was actually a subpar performance relative to the rest of the General's divisions, where combat systems sales rose 8%, and information and marine systems were both up 10%. Really, then, Gulfstream's "success" consists of the division controlling its costs more effectively than it was 12 months ago. So a (short) round of applause for Gulfstream, and now let's move on to ...

Valuation
With Q4 "in the bag," now's a great time to check whether General Dynamics' price makes sense to value-oriented investors -- so let's do that. Management more than delivered on last quarter's promise, ending the year with $6.82 per share in profits and $2.6 billion in total free cash flow. This works out to a P/E ratio of 10.8, and a price-to-free-cash-flow ratio only slightly higher at 10.7. With Wall Street analysts predicting long-term earnings growth of 7.5% and a dividend yield of 2.3%, I'd say this makes General Dynamics stock look slightly overpriced versus some of its competition.

Better bets? Northrop Grumman (NYSE: NOC) costs less (10 times earnings) and is growing faster. Better still, Lockheed Martin (NYSE: LMT) offers a cheaper P/E ratio than General D, faster growth, and a beefier dividend (3.8%). If you're looking for the best buy in defense stocks -- Lockheed's still it.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Embraer is a Motley Fool Stock Advisor recommendation. The Fool owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman.

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