On Jun 13, 2014, we issued an updated research report on
Badger Meter Inc.
), the manufacturer and marketer of flow measurement and control
technologies products. Even though earnings per share of 32 cents
marked a year-over-year rise of 60%, it lagged the Zacks Consensus
Gross margin decreased 20 basis points (bps) to 34.7% due to
product mix in the first quarter. Operating costs are expected to
be higher due to increased headcount in the key areas of the
company. Commodity costs, particularly of brass and copper-based
materials which constitute a significant portion of Badger Meter's
costs, are also anticipated to increase. If costs of raw material
rise and the company is unable to pass on the increase, margins
will be affected.
Weak growth expectation from automation sales and macroeconomic
headwinds along with the negative impact of foreign exchange may
affect Badger Meter's performance going forward.
Further, The American Institute of Architects' (AIA) Architecture
Billings Index (ABI) increased to 49.6 in Apr 2014, from 48.8 in
March. Though the index showed improvement, the reading below 50
signifies a decline in billings. Furthermore, weak public
construction spending remains the most significant risk to a
non-residential recovery, particularly in the light of further
government spending cut which makes expected recovery in the
non-residential market uncertain.
In addition, higher construction costs, labor shortage, lack of
funds for real estate projects and adverse effects of sequestration
are likely to remain challenges for the construction sector. This,
in turn will affect Badger Meter's sales.
Despite these negatives, Badger Meter will continue to benefit from
investment in research and development as well as through
introduction of several new products. Innovation in product
offering is a key element of Badger Meter's growth strategy.
Recently, the company expanded its E-Series ultrasonic meters with
a polymer version. It is a cost-effective alternative to the
stainless steel version. E-Series continues to be widely accepted
by customers even outside North America. In addition, the
introduction of ORION SE, the first simultaneous drive-by
fixed-network product, will help meet the rising customer demands.
Badger Meter also launched the BEACON Advanced Metering Analytics
(AMA) system, thereby becoming the first major water meter company
to provide water utilities with cost-effective cellular radio
Replacement demand is also expected to improve which will drive
growth in water meter. It is anticipated that unmetered communities
will adopt metering in the future as conservation needs increase
due to rising population. Utilities are adopting automatic meter
reading (AMR) systems to optimize productivity, accuracy, reader
safety, timeliness of billing and leak detection.
The company will also benefit from AMR/advanced metering
infrastructure (AMI) expansion in the near term which is likely to
boost Badger Meter's sales and earnings prospects.
At present, Badger Meter has a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked stocks in the same industry worth considering
Roper Industries Inc.
Mettler-Toledo International Inc.
). All of these stocks have a Zacks Rank #2 (Buy).
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ROPER INDS INC (ROP): Free Stock Analysis
BADGER METER (BMI): Free Stock Analysis Report
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METTLER-TOLEDO (MTD): Free Stock Analysis
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