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Editor's note: This was originally published on RealMoney. It's being republished as a bonus for readers.

Woodward Governor


posted another stellar quarter last night

Jul. 21. And with the palpable tension out there today in the form of


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Texas Instruments

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, it's important to balance the negativity and note the positive reports hitting the wire.

Woodward Governor earned 47 cents a share in its fiscal third quarter and beat consensus estimates of 43 cents (a 9.3% upside beat). Sales grew rose 23% year over year to $329 million, vs. the $308 million consensus (a 6.8% upside beat).

Even better, management issued upside guidance for fiscal 2008. It now sees revenue growth of roughly 20%, up from 14% to 16%, and $1.75 in earnings, up from the previous guidance of $1.61 to $1.66.

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I continue to view "The Governor" in a noncyclical fashion; the company is not reliant on the fickle U.S. economy for growth. Woodward is a global secular story. The company's business is divided into three segments: turbine systems, engine systems and electrical power systems. It is a front-and-center supplier to the drive for more efficient and cleaner energy systems.

On yesterday's conference call, Tom Gendron, president and CEO, discussed industrial turbine demand, saying, "Emission regulations, growing global energy demands and newer projects such as coal gasification all should provide opportunities for Woodward."

Favorable Winds

Also, Woodward Governor is a stealth play on wind power. In October 2006, it acquired SEG, a German designer and manufacturer of wind power generation products. Although the wind business is still a small fraction of overall revenue, it is growing rapidly. The company has guided to slightly higher than $100 million in revenue for the year (about 9% of total revenue).

Gendron says, "Demand for wind turbines continues to grow at a remarkable rate." The CFO adds, "Again this quarter, wind power sales were very strong."

Cramer: Give Your Portfolio Wind Power (Video):

Jim Cramer reviews his "wind-ex" stocks.

To watch the video, click the player below:

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Earlier in the year, Woodward announced plans to build a factory in Colorado to make wind turbine inverters. And this quarter, the company announced the completion of a newly designed scalable inverter that will launch before the end of the year.

A Growth Story

The company has beat consensus estimates for the past seven consecutive quarters as analysts continue to underestimate the earnings power of the company. The consensus numbers were too low in the past, and I believe they will be too low in the future.

So, what do I think it can earn? Where do I think it can trade to? Woodward earned $1.39 in fiscal 2007 and just guided to $1.75 for 2008, implying a growth rate of 26%. At minimum, I believe the company can maintain this growth, given the strength of its operating markets. This equates to earnings per share of $2.20 in fiscal 2009, which I still believe is eminently beatable.

And here is the upside edge: multiple expansion. Woodward is currently being valued and restrained under the classic cyclical stock formula. This is the wrong view. The company is now a growth stock in the era of demand for clean and efficient energy production. And more importantly, its numbers prove it.

I believe the company should trade in line with its growth rate. Slap a 26-times multiple on Woodward, and we have a $57 stock.

Finally, the stock is an under-the-radar play, as none of the bulge-bracket investment houses cover the company. It has a $2.6 billion market cap, and only six boutique firms cover Woodward currently. But I expect this to change soon, as the scent of Woodward's continued and impressive growth will inevitably attract the hungry bankers. Look for a pop in the stock as more firms initiate coverage and bring in the big institutional money.

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Patrick Schultz is a research associate at He has previously obtained securities licenses under the NASD's Series 7, Series 24, Series 52 and Series 63 exams and has worked in the financial markets on various trading desks in addition to trading for his own account. Schultz holds a bachelor's degree in applied economics from Cornell University.