Itron, Inc. (ITRI - Free Report) has been experiencing high demand for its OpenWay Riva solutions. Also, focus on restructuring, acquisitions and backlog strength are other vital growth drivers for the company. However, elevated expenses and competition in the AMI space remain headwinds.
This Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 21%.
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Itron
Value Growth Momentum (VGM) Score
Itron currently has a Zacks VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A, along with some other key metrics, makes the company a solid choice for investors.
Positive Earnings Surprise History
Itron has surpassed the Zacks Consensus Estimate in three out of the last four quarters, with an average beat of 2.93%.
The company has outperformed the industry it belongs to over the past three months. The stock has gained 7.1%, while the industry recorded growth of 6.6%.
Higher Inventory Turnover Ratio
Over the trailing 12 months, the inventory turnover ratio for Itron has been 6.9% compared with the industry’s level of 4.9%. A higher inventory turnover than the industry average implies that inventory is sold at a faster rate, suggesting inventory management effectiveness.
Growth Drivers in Place
In February 2018, Itron approved a new restructuring plan to optimize its global supply chain in manufacturing operations, product development, and sales and marketing organizations. This plan will result in estimated annualized savings of $45-$50 million, post completion, which is expected by the end of 2020. The restructuring plan also supports the company's goals to drive profitability beyond the near-term mid-teens EBITDA target.
Further, Itron’s acquisition of Silver Spring Networks will strengthen its ability to deliver a broader set of solutions, accelerate pace of growth, and innovation in the smart city and industrial IoT markets. The integration of Silver Spring is on track and Itron has confirmed $50 million of run-rate cost synergies by the end of 2020.
Again, Itron witnessed a steady backlog growth in 2017 backed by a number of new customer contracts. The company secured several notable contracts in fourth-quarter 2017. Notably, Itron expanded its project with Duke Energy to install an additional 3 million smart meters. It also signed a four-year distributed energy management contract extension with Pepco Holdings to manage its demand-response program.
In addition, Itron booked a five-year contract with NV Energy to implement Itron IntelliSOURCE. Itron’s contracts with Consumers Energy, Cascade Natural Gas Corporation and Questar Gas in North America, as well as new business at Sanepar in Brazil, and with SUEZ and Veolia in France will also be conducive to the company’s backlog.
Notably, Itron’s total backlog has increased 13% on a compounded annual basis and 12-month backlog has risen 15% over the past five years. These growth trends reflect strong industry demand for new technologies, and an expanding group of OpenWay Riva adopters across electricity, gas and water utilities. The company has been awarded $325-million contracts which are not yet reflected in the backlog. This apart, it has $5-million OpenWay Riva endpoints committed by customers, including Avista, Vectren, National Grid, Public Service of New Mexico and others.
Headwinds for Itron
In 2018, Itron anticipates to witness pre-tax restructuring charges in the $100-$110 million band for the latest restructuring plan. The company expects to record majority of this charge in first-quarter 2018. Further, Itron will incur approximately $60 million of one-time severance, professional fee and facility cost to achieve synergies from the Silver Spring acquisition. Most of these costs will be accrued in the first half of this year.
Itron’s liquidity might be affected by competitive pressure, changes in estimated liabilities for product warranties and litigation, future business combinations, and capital market fluctuations. The company will be under margin pressure due to heightened competition in the AMI space, particularly in North America, which could drag down meter prices.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the same sector are Teradyne, Inc. (TER - Free Report) , AMETEK, Inc. (AME - Free Report) and Fortive Corporation (FTV - Free Report) . While Teradyne sports a Zacks Rank #1 (Strong Buy), AMETEK and Fortive carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Teradyne has a long-term earnings growth rate of 12%. Its shares have gained 17%, year to date.
AMETEK has a long-term earnings growth rate of 11.5%. The company’s shares have rallied 8.3% during the same time frame.
Fortive has a long-term earnings growth rate of 9.6%. The stock has gained 8% year to date.
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