A year ago, Axsys Technologies Inc. (Nasdaq:AXYS), a specialty supplier of precision optics for military surveillance gear, took off like a surveillance helicopter headed for Iraqi air space. The question now is whether this pricey stock will once again beat Street estimates and continue its climb, or miss expectations and see a serious correction.

Axsys had been trading between about $20 and $25 for several years, then the stock soared 178% to close at about $50 on April 18, from a closing price of $18.38 a year earlier, resisting any threats of recession. The stock closed Friday at $50.15.

It has not yet failed to please. In an earnings preview report released April 17, analyst Stephen E. Levenson at Stifel Nicolaus wrote that he’s anticipating an announcement of increased demand for the company’s thermal optics devices, and reiterated his “buy” rating and target price of $54.

Elsewhere on the Street, analyst Michael Ciarmoli at Boenning & Scattergood, maintains his neutral “market perform” rating, keeping an eye out for any stumble in coming quarters. He said the stock’s multiple of price to operating earnings is already 50% higher than that of its aerospace and defense peers. Its nearest competitor, Flir Systems Inc. (Nasdaq:FLIR), is a much larger company ($4 billion market cap compared to $556 million for Axsys) with a broader product line, higher operating profit margins (about 50% compared to Axsys’ 30%), and the same growth rate, about 20% on the top line. Both stocks are trading at a P/E of 33. “I like everything about this company except the valuation,” Ciarmoli says. Most other analysts also have a “neutral” or “hold” rating.

Axsys makes infrared and optical lenses, motion control assemblies and optical scanning assemblies, which it sells to defense contractors who use them to create high-power surveillance systems for the military and law enforcement agencies.

In April of last year it bought Cineflex LLC for $27 million, using cash and revolving credit. Cineflex makes high-precision gyro-stabilized aerial cameras mounted on planes and helicopters. By combining that with its own business of optical and motion control components, Axsys now has the opportunity to sell complete surveillance systems, broadening its market and becoming more vertically integrated.

It’s also being boosted by the fact that it sold off its industrial ball bearing business, AST Bearings, for $15.5 million in cash last December, ending investors’ concern that it was an unfocused conglomerate.

Throughout all this, the company has been hitting its targets like a sharpshooter behind an infrared scope. Prices of its thermal optics and motion control systems keep dropping along the same kind of curve as semiconductor chips, because the manufacturing process of the components is similar to that of microprocessors and other chips.

Stifel Nicolaus’ Levenson is also looking forward to the company winning new contracts for products from Cineflex, such as Driver Vision Enhancers, Ground-based Surveillance Systems and Vehicle Optics Sensor Systems. Such precision gear can be mounted on driverless vehicles and drone helicopters, with gyro technology keeping their view steady and soldiers safe.

Its growth has been highly consistent, with revenues growing at least 5% to 6% sequentially each quarter and earnings growth of 8% sequentially. Levenson, who has the best record of earnings estimates for Axsys, is expecting GAAP earnings of $0.39, a penny below consensus, and revenue of $49.5 million, versus consensus of $49.8 million. His $54 target price is based on a 13 times multiple of his 2008 EBITDA estimate.

But there are potential obstacles in the airspace ahead. Nobody knows how the change in the White House next year will affect defense spending. The company has indicated it may make further acquisitions, and the foibles of integrating product lines can hurt margins. A key material in its products, beryllium, is supplied by only one source, and prices have been rising steadily. The company has also indicated that capacity restraints have caused it to fall behind in deliveries of high-end thermal imaging systems; timely deliveries are a differentiating factor in this business.

Finally, it’s still new at creating complete, integrated systems, which offer higher margins, rather than simply delivering components to prime contractors. Its competitor, Flir, already has a strong vertically integrated product line.

That concerns Boenning’s Ciarmoli. He believes that shareholders have kept the stock price rising because it’s been one of the few steady performers in a lousy market. Any unexpected weakness could hit the stock hard. “The stock is priced on guidance that assumes flawless execution,” he says.

Still, management guidance, which is updated regularly, has given no indication that Axsys will miss targets this quarter. Given the continued misfortunes of war and threats of terrorism, demand should remain strong. One more strong quarter could push this stock closer to Levenson’s $54 target. It’s all up to management execution.

The company will release earnings after the market closes on April 23, with a conference call to follow at 10 a.m. ET the next day.