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Growth & Income

Badger Meter, Inc. (BMI - Analyst Report) delivered strong first quarter results on April 18, prompting analysts to revise their estimates significantly higher for both 2012 and 2013.

This sent the stock to a Zacks #2 Rank (Buy).

Analysts believe that demand for Badger Meter's products has turned a corner, and this should drive strong growth over the next few years. In addition, the company has been steadily increasing its dividend. It currently yields a solid 1.7%.

Company Description

Badger Meter manufactures flow measurement and control products for water and gas utilities, municipalities and industrial markets worldwide.

The company was founded in 1905 and is headquartered in Milwaukee, Wisconsin. It has a market cap of $554 million.

First Quarter Results

Badger Meter reported better than expected first quarter results on April 18. Earnings per share came in at 45 cents, crushing the Zacks Consensus Estimate of 27 cents.

Net sales rose 33% year-over-year to $76.2 million, well ahead of the Zacks Consensus Estimate of $70.0 million. This was aided in part by an acquisition, but organic sales were strong too, especially in the ORION® family of metering technology systems for the municipal water market.

The gross profit margin expanded from 35.6% to 37.9% of net sales due in part to higher sales volumes and the acquisition, which typically has higher margins overall. Meanwhile, operating income increased 95% year-over-year.

Estimates Soaring

Analysts revised their estimates significantly higher off the strong quarter, sending the stock to a Zacks #2 Rank (Buy).

The acquisition played a part in the positive estimate revisions, but analysts also believe that demand for Badger Meter's products are improving, especially among municipalities.

The Zacks Consensus Estimate for 2012 is now $1.74, representing 30% growth over 2011 EPS. The 2013 consensus estimate is currently $1.98, corresponding with 14% growth.

Dividend

In addition to strong growth, Badger Meter offers a dividend that yields a solid 1.7%. As you can see in the chart below, the company has a history of steadily increasing its dividend:

BMI: Badger Meter, Inc.

With a solid balance sheet, strong free cash flow, and strong earnings growth projections, expect that dividend to continue rising.

Valuation

The valuation picture looks reasonable for Badger Meter, although it is not a screaming value. Shares trade at 22x 12-month forward earnings, above the industry median of 14x. But considering the company's above-average earnings growth prospects, this premium seems warranted.

Over the last 10 years the stock has traded at median forward earnings multiple of 20x.

The Bottom Line

With rising estimates, strong growth projections, a solid 1.7% yield and reasonable valuation, Badger Meter offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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