Shares of Badger Meter Inc. (BMI) reached a new 52-week high of $59.21 on Dec 23, up from its previous high of $58.24 on Nov 12. The new high is due to expected benefits from strength in the municipal channel.
This Wisconsin-based provider of liquid flow measurement products and control technology has a market cap of $846.3 million. The stock closed at $58.57 at the end of trading yesterday, with a one-year return of about 8.3% and year-to-date return of over 9%. The average volume of shares traded over the last three months was roughly 49K.
Growth Drivers
Shares of Badger Meter have been rising since the company reported its third-quarter 2014 results on Oct 15, wherein earnings per share of 71 cents increased 12.7% year over year and beat the Zacks Consensus Estimate of 68 cents as well.
Net sales also improved 3.6% year over year to a record $96 million. Higher sales of residential municipal water products and flow instrumentation products resulted in the year-over-year improvement in sales. Municipal water sales, which accounts for around 73% of total sales, increased 4% year over year in the quarter.
The company expects the municipal channel to boost sales given that U.S. replacement sales are expected to drive water meter growth consistently at a rate of 1–4% annually over the next 3–5 years. It is also expected that more unmetered communities will adopt metering in the future as conservation needs increase owing to population shifts. Further, the automatic meter reading (AMR) market will increase 10% in the near term which should enhance Badger Meter's sales and earnings growth prospects.
Innovation in product offering is a key element of Badger Meter‘s growth strategy. Its new products, including the E-Series Meter, ORION SE Radio and the BEACON system, will drive higher sales. The company expects strong growth in this product line as new orders continue to arrive. E-Series also appears to be growing faster than expected, prompting management to move production to a larger facility. Continued demand for the E-Series meter should facilitate improvement in sales performance.
In addition, Badger Meter will benefit from acquisitions. The acquisition of National Meter and Automation, Inc., closed on Oct 1, 2014, will add around $15 million of incremental revenues to Badger Meter (after eliminating intercompany sales). The acquisition will also enable the company to serve the market more efficiently, providing benefits to customers and other distributors while aiding bottom-line growth.
Moreover, Badger Meter’s margins are expected to trend higher as cost pressures subside and sales mix improves. The company will also gain from investment in research and development.
At present, Badger Meter has Zacks Rank #3 (Hold).
Other Stocks to Consider
Other players worth considering in the sector include Roper Industries Inc. (ROP), Woodward, Inc. (WWD) and Arrow Electronics, Inc. (ARW). All these stocks carry a Zacks Rank #2 (Buy).
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