(BMI - Analyst Report
) has seen earnings estimates fall considerably after reporting a big earnings miss on April 16.
This has sent the stock to a Zacks Rank #5 (Strong Sell).
Although the stock has pulled back a bit since the earnings report, the valuation picture still does not look attractive. Shares trade at a premium to their historical median and the industry multiple on both a price/earnings and price/cash flow basis.
Badger Meter manufactures flow measurement and control products for water and gas utilities, municipalities and industrial customers worldwide. It was founded in 1905 and has a market cap of $638 million.
Big Fourth Quarter Miss
Badger Meter delivered disappointing first quarter results on April 16. Earnings per share came in at 20 cents, missing the Zacks Consensus Estimate of 48 cents by 58%. It was also a 52% decline from the same quarter last year.
Net sales fell 6% to $71.808 million, well below the consensus of $80 million. The company stated that more snow than average significantly impacted meter replacement activities and that sales to utilities in the Northeast were negatively affected by Hurricane Sandy and lingering concerns related to municipal budgets.
Meanwhile, the gross profit margin declined 300 basis points to 34.9% of sales due to lower capacity utilization. And the operating profit margin fell 680 basis points to 6.6%.
Although management believes the factors impacting Q1 sales are "temporary events that have delayed some meter orders into future quarters", analysts have revised their earnings estimates significantly lower for both this year and next. This has sent the stock to a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for 2013 is now $1.85, down from $2.29 just 30 days ago. The 2014 consensus has fallen from $2.68 to $2.30 over the same period.
You can see this negative earnings momentum in the company's 'Price & Consensus' chart:
The 'Instrument - Control' industry also ranks in the bottom 5% of all industries in the Zacks Industry Rank.
Shares of Badger Meter have pulled back a bit since the earnings report, but valuation still looks pricey at these levels. Shares currently trade at 22.7x 12-month forward earnings, a premium to its 10-year median of 19.8x and the industry median of 16.5x.
Its prices to cash flow ratio of 17.5 is also well above the industry median of 12.0.
The Bottom Line
With declining earnings estimates and premium valuation, investors should consider avoiding Badger Meter until its earnings momentum turns around.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.