Badger Meter, Inc.
) delivered strong first quarter results on April 18, prompting
analysts to revise their estimates significantly higher for both
2012 and 2013.
This sent the stock to a Zacks #2 Rank (Buy).
Analysts believe that demand for Badger Meter's products has turned
a corner, and this should drive strong growth over the next few
years. In addition, the company has been steadily increasing its
dividend. It currently yields a solid 1.7%.
Badger Meter manufactures flow measurement and control products for
water and gas utilities, municipalities and industrial markets
The company was founded in 1905 and is headquartered in Milwaukee,
Wisconsin. It has a market cap of $554 million.
First Quarter Results
Badger Meter reported better than expected first quarter results on
April 18. Earnings per share came in at 45 cents, crushing the
Zacks Consensus Estimate of 27 cents.
Net sales rose 33% year-over-year to $76.2 million, well ahead of
the Zacks Consensus Estimate of $70.0 million. This was aided in
part by an acquisition, but organic sales were strong too,
especially in the ORION® family of metering technology systems for
the municipal water market.
The gross profit margin expanded from 35.6% to 37.9% of net sales
due in part to higher sales volumes and the acquisition, which
typically has higher margins overall. Meanwhile, operating income
increased 95% year-over-year.
Analysts revised their estimates significantly higher off the
strong quarter, sending the stock to a Zacks #2 Rank (Buy).
The acquisition played a part in the positive estimate revisions,
but analysts also believe that demand for Badger Meter's products
are improving, especially among municipalities.
The Zacks Consensus Estimate for 2012 is now $1.74, representing
30% growth over 2011 EPS. The 2013 consensus estimate is currently
$1.98, corresponding with 14% growth.
In addition to strong growth, Badger Meter offers a dividend that
yields a solid 1.7%. As you can see in the chart below, the company
has a history of steadily increasing its dividend:
With a solid balance sheet, strong free cash flow, and strong
earnings growth projections, expect that dividend to continue
The valuation picture looks reasonable for Badger Meter, although
it is not a screaming value. Shares trade at 22x 12-month forward
earnings, above the industry median of 14x. But considering the
company's above-average earnings growth prospects, this premium
Over the last 10 years the stock has traded at median forward
earnings multiple of 20x.
The Bottom Line
With rising estimates, strong growth projections, a solid 1.7%
yield and reasonable valuation, Badger Meter offers investors
attractive total return potential.
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
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