On Oct 7, we upgraded our recommendation on liquid flow
measurement products and control technologies provider
Badger Meter Inc.
) to Neutral. Our view reflects improved volumes, Aquacue
acquisition and product launches. However, subdued growth for
automation sales, higher operating costs and global economic
weakness remain headwinds.
BADGER METER (BMI): Free Stock Analysis
COGNEX CORP (CGNX): Free Stock Analysis
METTLER-TOLEDO (MTD): Free Stock Analysis
THERMON GROUP (THR): Free Stock Analysis
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Why the Upgrade?
Badger Meter, on Jul 18, reported net sales of $88 million for
the second quarter of 2013, up 7.8% year over year, mainly on
higher sales of municipal water as well as industrial flow
products. The results were ahead of the Zacks Consensus Estimate
of $87 million. However, earnings per share declined 15.4% year
over year to 44 cents due to litigation and pension charges and
missed the Zacks Consensus Estimate of 55 cents.
Badger Meter, a Zacks Rank #3 (Hold) stock, raised its quarterly
dividend by 5.9% to 18 cents per share in Aug 2013. This
represents the 21st consecutive hike in its dividend. The hike
demonstrates Badger Meter's continued focus on healthy free cash
flow generation and shareholder returns.
Results in the second half are expected to be better than the
first due to benefits of acquisition, product launches and upbeat
global energy demand. The company's acquisition of Aquacue, in
Apr 2013, is expected to enhance product offerings by integrating
operations and technology.
Badger Meter also released an updated version of ReadCenter
Analytics software, which allows municipal water utilities to
gather significant amounts of metering data and perform detailed
analysis to improve their operations and customer service. In
addition, AMR/AMI expansion will also drive growth in the near
term that should enhance Badger Meter's sales and earnings
However, Badger Meter's operating costs are expected to be higher
due to added headcount in key areas. Commodity costs, in
particular brass and copper-based materials, constitute a
significant portion of Badger Meter's costs. If costs rise and
the company is unable to pass on the raw material price increase,
margins will be affected.
Moreover, higher construction costs, labor shortage, lack of
funds for real estate projects and adverse effects of
sequestration are likely to remain headwinds for the construction
sector. This, in turn may affect Badger Meter's sales.
Other Stocks to Consider
Among the other stocks in the same sector,
Thermon Group Holdings, Inc.
Mettler-Toledo International Inc.
) look favorably placed with a Zacks Rank #2 (Buy).