We are downgrading our recommendation on Badger Meter from Neutral
to Underperform with a target price of $46. Earnings improved 60%
year over year to $0.32 per share in the first quarter of 2014, but
missed the Zacks Consensus Estimate of $0.44. Badger Meter's
performance could be impacted by weak growth for automation sales,
macroeconomic headwinds and the negative impact of foreign
exchange. Volatility in raw material prices could also hurt margins
for the company. Furthermore, weak public construction spending
remains the most significant risk along with higher construction
costs, labor shortage and the strained global economy.
Headquartered in Milwaukee, WI, Badger Meter Inc. provides
liquid flow measurement products and control technologies serving
water and gas utilities, municipalities and industrial customers
worldwide. The company's products, which are developed both
internally and in collaboration with other technology companies,
are used in a wide variety of applications, including water, oil
and chemicals. The company's product lines fall into three
categories. They are as follows:
Municipal water: This is the largest category by sales volume.
It involves sales of meters, and related technologies and services
used by water utilities as the basis for generating water and
wastewater revenues. The key market is North America, primarily the
United States, as the meters are designed and manufactured to
conform to standards promulgated by the American Water Works
Association. Sales of water meters and related technologies and
services are commonly categorized as residential or commercial
water meter, the latter referring to larger sizes of meters.
Industrial flow: It includes products sold for other water-based
purposes, including irrigation, water reclamation and industrial
process applications. It also comprises meters and related
technologies and services for measuring a wide variety of fluids in
industries such as food and beverage, pharmaceutical production,
petroleum, heating, ventilating and air conditioning (HVAC),
measurement and dispensation of automotive fluids.
Specialty products: This category includes sales of radio
technology to natural gas utilities for installation on their gas
meters, valves and concrete vibrators.
Badger Meter Inc. (BMI): Read the Full Research
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