Badger Meter, Inc. (BMI - Free Report) has been experiencing growing demand for its E-Series meters and ORION cellular endpoints. Also, focus on acquisitions, rebound in the Flow Instrumentation business and benefits of the U.S. tax reform are other vital growth drivers for the company. On the other hand, elevated expenses and rising copper costs remain concerns.
This Zacks Rank #3 (Hold) company has a market capitalization of around $1.3 billion. The stock has an estimated long-term earnings growth rate of 15.3%.
Below, we briefly discuss the company’s potential growth drivers and likely headwinds.
Factors Favoring Badger Meter
Positive Earnings Surprise History
Badger Meter surpassed the Zacks Consensus Estimate in three out of the last four quarters, delivering an average positive earnings surprise of 1.02%.
Positive Estimate Revisions, Growth Projections
The Zacks Consensus Estimate for 2018 and 2019 has been revised nearly 23% and 21% upward, respectively, over the past 90 days. The Zacks Consensus Estimate for current-year earnings is pegged at $1.60, reflecting estimated year-over-year growth of 34%. The Zacks Consensus Estimate for 2019 earnings is pegged at $1.76, indicating estimated year-over-year increase of 10%.
The company has outperformed the industry in the last year. Its shares have rallied 30.6%, while the industry recorded growth of 24.5%.
Return on Assets (ROA)
Badger Meter currently has a ROA of 9.2%, while the industry's ROA is 8.2%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Growth Drivers in Place
Badger Meter is well poised to gain from the growing demand for E-Series meters and ORION cellular endpoints, as well as BEACON Advanced Metering Analytics (AMA) managed solution in the near future. The company will also benefit from the integration of the D-Flow technology into E-series meters. Further, introduction of the next version of E-series meters in the second half of 2018 will stoke Badger Meter’s growth in the form of product improvement and cost reduction.
Notably, Badger Meter recently agreed to acquire Innovative Metering Solutions. This buyout will help the company serve its utility customers in the Southeastern United States. In addition, the acquisition of D-Flow in 2017 will help Badger Meter enhance its successful E-Series Ultrasonic product line, lower production costs and provide a platform for further advancement of ultrasonic capabilities. It also bought the assets of Carolina Meter & Supply in November last year. The buyout will help boost the company’s sales, as well as technical and operational support to its customers.
In addition to the above, Badger Meter will benefit from significant rebound in the Flow Instrumentation business, driven by continued improvement in the oil and gas markets, as well as the impact of sales channel reorganizations. Furthermore, its distribution agreement with DNOW L.P. for global sales into the oil and gas industry will likely prove conducive to long-term growth.
Finally, Badger Meter expects the tax reform to be highly beneficial for the company over the long term. It believes the tax legislation will have a positive impact on its bottom-line growth this year. The company anticipates that the effective tax rate will drop to around 24% in 2018, from the normal range of 35-36%.
Recently, Badger Meter announced its intention to terminate the company’s frozen pension-benefit plan. For that, it will incur a one-time charge currently estimated around $5 million in 2018, which might affect earnings. Additionally, escalating copper costs are expected to drag down Badger Meter’s margins.
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 Allied Motion Technologies, Inc. (AMOT - Free Report) , Sensata Technologies Holding N.V. (ST - Free Report) and Agilent Technologies, Inc. (A - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Allied Motion has an expected long-term earnings growth rate of 16%. The company’s shares have surged 86% in the past year.
Sensata has an expected long-term earnings growth rate of 10%. The stock has gained 31.5% in a year’s time.
Agilent has a long-term earnings growth rate of 10.8%. The company’s shares have rallied 25.7% during the same time frame.
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