We have recently upgraded our recommendation from Neutral to
Badger Meter Inc.
), a manufacturer of flow measurement and control products. The
stock currently retains a short-term Zacks #1 Rank (Strong
Badger Meter reported strong third quarter 2012 results with
EPS rising 35% year over year to 62 cents and way ahead of the
Zacks Consensus Estimate of 47 cents. The outperformance was
driven by robust sales, improved profit margins as well as
successful ongoing cost reduction activities.
Total revenue surged 25% on a year-over-year basis to $87
million in the quarter, outperforming the Zacks Consensus
Estimate of $81 million. The acquisition of Racine Federated as
well as increased sales of the company's municipal water products
contributed to the increase.
In January 2012, Badger Meter acquired Racine Federated, Inc.,
a manufacturer and marketer of flow meters for the water industry
and industrial metering and specialty products. The integration
is on track and is expected to be completed by 2012 end. Racine
Federation, along with Cox Flow Measurement and Remag, will boost
Badger Meter's flow measurement business globally.
The acquisitions broadened the product range and customer base
of Badger Meter. It also has opened the door to future expansion
in the global arena. Furthermore, Racine Federated's products
carry slightly higher margins and thus will contribute to margin
expansion for Badger Meter.
There are approximately 53,000 water utilities in the United
States, of which less than 30% have been converted to an
automatic meter reading (AMR) or advanced metering infrastructure
(AMI) technology. Although there is a growing interest in AMI and
advanced metering analytics (AMA) communication by water
utilities, majority of utilities continue to prefer AMR
technologies for their applications.
Badger Meter's ORION technology has been selected by an
increasing number of water utilities as their AMR solution.
According to the company, even with growing interest in AMI and
AMA, AMR will continue to be the first choice for a number of
years as it is the most cost-effective solution available
currently. However, the company has recently introduced AMA,
which is believed to be the next generation of metering
technology and help maintain the company's position as a market
leader and meet customers' future needs.
Badger Meter has a strong balance sheet and healthy cash
flows, helping it to invest in growth opportunities and in
developing new products and return cash to shareholders. Even
after its largest ever acquisition of Racine Federated, Badger
Meter has no long-term debt on its balance sheet and also
maintains a total debt-to-capitalization ratio of 30%.
Badger Meter continues to reallocate its free cash flow by
paying dividends consistently and repurchasing shares. The
company has increased its dividend for 20 consecutive years. In
August this year, Badger Meter increased its quarterly common
stock dividend by 6.25% to 17 cents per share. In November last
year, Badger Meter authorized the repurchase of shares worth up
to $30 million over a period of two years, which was completed in
the second quarter.
Headquartered in Milwaukee, Wisconsin, Badger Meter is a
leading innovator, manufacturer and marketer of flow measurement
and control products, catering to water and gas utilities,
municipalities and industrial customers across the globe. Its
product lines fall into two categories - water applications and
specialty applications - and are used in a wide variety of
applications, including water, oil and lubricants. The company
manufactures its products in its facilities across the U.S.,
Germany, Mexico and Switzerland. Badger Meter competes with
Roper Industries Inc.
BADGER METER (BMI): Free Stock Analysis
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ROPER INDS INC (ROP): Free Stock Analysis
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