We maintain our Neutral recommendation on
Badger Meter Inc.
). We currently have a Zacks #3 Rank (short-term Hold
recommendation) on the stock.
Badger Meter's recent acquisition of Racine Federated, Inc., a
manufacturer and marketer of flow meters for the water industry and
industrial metering and specialty products, will increase the
company's flow measurement business globally. The acquisition of
Racine Federated along with previously acquired Cox Flow
Measurement and Remag broadened the product range and customer base
for 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
There are approximately 53,000 water utilities in the United States
of which less than 30% have converted to an automatic meter reading
(AMR) or advanced metering infrastructure (AMI) technology.
Although, there is growing interest in AMI and advanced metering
analytics (AMA) communication by water utilities, the 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, believed to be
the next generation of metering technology, which will help
maintain the company's position as a market leader and meet
customers' future needs.
Badger Meter continues to reallocate its free cash flow through
dividend payments and share repurchases. The company has increased
its dividend for 19 consecutive years. In August last year, Badger
Meter increased its quarterly common stock dividend by 14.3% to 16
cents per share.
Keeping up with the trend and backed by its strong cash flow and
balance sheet, we expect another dividend hike this year. In
addition, it has also announced a repurchase of up to $30 million
of shares over a period of two years.
On the flipside, Badger Meter's earnings were affected in 2011 by
the continued weakness in the municipal water business as customers
delayed their decision-making process driven by concerns regarding
Approximately 75% of the company's revenue is directly related
to water utility and municipal spending cycles, which has been
difficult to predict and volatile historically. Even though
improvement was noted in the first quarter, it is not clear whether
this will be lasting considering the economic uncertainty.
BADGER METER (BMI): Free Stock Analysis Report
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Commodity costs, particularly brass and copper-based materials,
constitute a significant portion of Badger Meter's costs. Even
though copper costs declined in the first quarter, considering the
volatility, if costs rise and the company is unable to pass on the
raw material price increase, margins will come under pressure.
Milwaukee, Wisconsin-based Badger Meter Inc. provides liquid flow
measurement products and control technologies serving water and gas
utilities, municipalities and industrial customers worldwide. The
company's product lines will fall into three categories: Municipal
water, Industrial flow and Specialty products. It competes with
Roper Industries Inc