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By Ann Keeton 
Of DOW JONES NEWSWIRES 
 
CHICAGO (Dow Jones)–With a corner on the U.S. defense market for very small, unmanned aircraft and new clean energy technology in the pipeline, AeroVironment, Inc.’s (AVAV) chairman and chief executive, Timothy Conver, expects the company to find continued opportunities for revenue growth.

Conver said Secretary Robert Gates’ strategy at the U.S. Department of Defense, to offer greater support to current armed forces, plays into AeroVironment’s strength.

“We make hand-launched aircraft that save lives of soldiers,” Conver said.

The tiny planes, including the best-selling Raven, with a 4.5-foot wingspan, can fit in a soldier’s backpack. They can be used, for example, to fly over the next hill and send pictures back to a hand-held device that lets the ground fighter and others around him see as far as six miles ahead. So far, thousands of military personnel have been trained to use the battery-powered aircraft.

Conver said in an interview he sees a growing business with U.S. allies, who want to use the same equipment as the U.S. military, and in commercial and civil government applications for security and surveillance.

So far, AeroVironment has won all four U.S. Defense Department contracts for small unmanned aircraft, competing with more than a dozen other contractors, Conver said.

However, the drawback for a relatively small defense company (in fiscal year 2008, AeroVironment reported earnings of $21 million, on $215 million in revenue) is that orders can be “lumpy,” Conver said. Revenue is tricky to forecast, since one big order for a company that size can cause a major shift in quarterly results.

The Monrovia, Calif., company has a number of products in development, including an armed version of the unmanned aircraft, and a very large, high-flying craft, which could be used by government and commercial customers as an alternative to much more expensive satellites.

About 15% of annual revenue comes from clean energy technology, and 85% from aircraft. AeroVironment, which went public two years ago, was an initial partner with General Motors Corp. (GM) on a prototype electric car. Conver said the company is still waiting for a viable commercial market for electric-powered vehicles, but already is the leader in fast-charging batteries for use in industrial equipment, including forklifts.

“We can charge a battery in about the time it takes to fill the gas tank of an SUV,” he said.

The company’s profits have beaten analysts’ mean expectations every quarter – until the most recent one. Investors shed the stock last month when AeroVironment reported an earnings disappointment. The shares plummeted to a 52-week low of $18.50, down from the 52-week high set a month before.

Even at $22.82, where the shares traded Tuesday, they have a price-to-earnings ratio of 20, much higher than the defense industry average.

But, anticipating continued double-digit revenue growth, the majority of 16 analysts reporting to FactSet have a buy or overweight rating on the stock. Analyst Michael Lewis at BB&T Capital Markets called the recent price drop a buying opportunity, on March 10 raising his rating to buy from hold. He considers the company a core holding among defense stocks. “The growth story remains,” with opportunities to sell upgraded aircraft systems to the Defense Department and U.S. alliance partners, he said.

Analyst Jeff Evanson at Dougherty & Company LLC is the lone outlier to put a sell rating on the shares, expecting that demand for the Raven will fall as the U.S. exits Iraq. He doesn’t see sales of other products ramping up quickly to fill the gap, but says the company is developing innovative products for the long term.

“The question is, when and how much” will new products contribute to the bottom line, the analyst said.