TORONTO (Dow Jones)--Cormark Securities Inc. initiated coverage of Hammond Power Solutions Inc. (HPS.A.T) with a target price of C$15 and a buy recommendation, citing its strong organic growth, "robust" balance sheet and high return on equity levels.

In a research report, analyst Sarah Hughes said the company has nearly doubled its revenue organically since going public seven years ago to about C$160 million. "This growth was not achieved by one 'home run' but through a number of 'base hits,' thanks to management's aggressive focus on organic growth while continuously adjusting its cost base," she said.

The analyst noted that despite this strong performance, the Guelph, Ont. company's exposure among institutional investors is modest and its valuation is at a "steep discount" to its industrial peers.

Hammond designs and manufactures dry-type custom electrical engineered and standard electrical dry-type transformers.

The company has managed to perform well despite the appreciation of the Canadian dollar through a variety of means, including expanding into the oil and gas pumping market and continuing to penetrate the mining infrastructure market.

It also shielded itself from the strengthening Canadian dollar by completing its first major acquisition as a public company by purchasing Delta Transformers earlier this year. Delta, a Quebec company that designs and makes standard and custom dry type transformers, services the Canadian market and had annual revenue of C$38 million last year.

The Delta acquisition gives the company a dominant share of the Canadian market, about 50%, and provides additional capacity to service the U.S., Hughes said.

It is also looking to expand in the U.S. distributor market and to bring on low-cost production from Mexico, the analyst added.

Hammond Power has positioned itself to participate in the wind generation industry as a major supplier to GE Energy, which in 2007 controlled 45% of the U.S. wind market.

"In addition to strong operational performance, Hammond's balance sheet has undergone a significant improvement and its return on equity has been 27% over the past two years," she said.

The company reported earnings of C$1.06 a share in 2007. The analyst is forecasting earnings of C$1.25 a share in 2008 and C$1.38 a share in 2009.

Thursday in Toronto, Hammond is trading at C$11.35, up 3.3%.

Cormark doesn't have an investment banking relationship with Hammond and the analyst doesn't own shares in the company.

Company Web site: http://www.hammondmfg.com

-Meghan Baker, Dow Jones NewsWires; 416-306-2100