Badger Meter Down to Underperform - Analyst Blog
15 May 2013 - 1:00AM
Zacks
On May 10, we downgraded our
recommendation on provider of liquid flow measurement products and
control technologies, Badger Meter Inc. (BMI) from
Outperform to Underperform. The downgrade followed its lackluster
first quarter results, lower sales in the municipal water business,
weak industrial sales and the expectation of higher operating
costs.
Why the Downgrade?
Badger Meter’s first quarter revenue declined 6% on a
year-over-year basis to $71.8 million in the quarter.
Higher-than-average snowfall, which significantly impacted meter
replacement activities, a 30% decline in sales to utilities in
communities in the Northeast affected by Hurricane Sandy as well as
concerns related to municipal budgets affected sales. First-quarter
earnings per share were reported at 20 cents, down significantly
from 42 cents earned in the year-ago quarter.
Badger Meter’s earnings per share had been affected since 2011 by
the continued weakness in the municipal water business as customers
were compelled to stretch their decision-making process driven by
concerns regarding the economy. Purchase decisions are subject to
budgets, politics, pricing, service demands, etc. Approximately 75%
of the company's revenue is directly related to water utility and
municipal spending cycles, which historically has been volatile and
difficult to predict.
Even though improvement was noted in the last two quarters of 2012,
sales declined in the first quarter of 2013. Badger Meter cited
higher-than-average snowfall as the largest headwind to sales in
the quarter. This is because fewer meters get replaced in adverse
weather conditions. There were also concerns related to municipal
budgets.
Industrial sales were up slightly due to an extra month of sales
from Racine Federated in the first quarter compared to the
prior-year quarter. However, on an organic basis (excluding one
month of Racine Federated) sales were down 14% as customer
uncertainty and soft industrial markets restrained sales.
Operating costs are expected to be higher due to added headcount
and amortization from the Aquacue acquisition. Commodity costs,
particularly 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.
Other Stocks to Consider
Other players in the same industry, which look attractive at
current levels include Roper Industries Inc.
(ROP), Cubic Corporation (CUB) and
Coherent Inc. (COHR) which carry a Zacks
Rank #2 (Buy).
BADGER METER (BMI): Free Stock Analysis Report
COHERENT INC (COHR): Free Stock Analysis Report
CUBIC CORP (CUB): Free Stock Analysis Report
ROPER INDS INC (ROP): Free Stock Analysis Report
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