It has been about a month since the last earnings report for Badger Meter (BMI Quick QuoteBMI - Free Report) . Shares have added about 6.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Badger Meter due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Badger Meter Q3 Earnings Top Estimates, Revenues Rise

Badger Meter reported impressive third-quarter 2020 results, with net earnings and revenues increasing year over year.

Net Income

Quarterly net earnings for the reported quarter were $14.9 million or 51 cents per share compared with $12.7 million or 44 cents per share in the year-ago quarter. The year-over-year improvement can be primarily attributed to higher revenues. Further, the bottom line beat the Zacks Consensus Estimate by 11 cents.

Revenues

Quarterly net sales increased to $113.6 million from $108.6 million in the year-ago quarter. The 4.5% revenue growth was primarily due to a surge in manufacturing output with consistent demand post COVID-19-induced lockdown. Also, the company witnessed a favorable mix of high-end products and services along with higher BEACON Software as a Service revenues. The top line surpassed the consensus mark of $104 million.

As the pandemic lockdown eased, municipal water sales rose 11% owing to backlog conversion and recovering orders. Also, the company continued to witness higher demand for and adoption of new technology products and solutions like ORION Cellular radios and ultrasonic meter technology, which contributed to the impressive sales growth in the reported quarter. However, flow instrumentation declined 18% year over year due to sluggish industrial end markets, particularly due to challenges posed by the COVID-19 outbreak.

Other Details

Gross profit was $45 million, up 8% from $41.7 million in the year-earlier quarter. Gross margin was 39.6%, up 120 basis points (bps) year over year. The upside was primarily driven by favorable sales mix and higher sales with prior-year non-recurring discrete warranty charge. Operating earnings were $19.5 million or 17.2% of sales compared with respective tallies of $16.4 million and 15.1% in the year-earlier quarter.

Selling, engineering and administration expenses were $25.5 million compared with $25.2 million in the prior-year quarter. The increase was primarily due to higher personnel costs. However, it was partially offset by lower travel and other pandemic-related expenses.

Cash Flow & Liquidity

During the first nine months of fiscal 2020, Badger Meter generated $73.7 million of net cash from operations compared with $61.1 million in the prior-year period, driven by strong earnings conversion. Free cash flow for the quarter was unchanged at $19.1 million despite higher federal income tax payment. With a stable free cash flow, the company’s performance was driven by a robust balance sheet position along with an effective working capital management. As of Sep 30, the company had $93.9 million in cash and equivalents with no short-term debt.

Moving Forward

With the gradual stabilization of overall end-market activities post lockdowns, Badger Meter remains optimistic related to its near-term outlook. The Milwaukee, WI-based controls products manufacturer expects to witness solid backlog and bid pipeline on the back of increasing orders in the upcoming quarters. This will eventually help the company to ensure smooth functioning of business operations. Although a small portion of customers could face budget constraints with project deferrals, Badger Meter remains committed to delivering critical products and services to its diversified customer base during this hour of crisis.

The company is well poised to enable strategic, tuck-in mergers and acquisitions to augment offerings across global markets with a strong liquidity position. Badger Meter is focused on investing in digital solutions that operationalize real-time data and utilize remote solutions to reduce overall costs and enhance efficiency. For additional financial flexibility, the company has $125 million under revolving credit facility to fund capital allocation priorities. Customer demand is anticipated to be the crux of product and technology roadmap, with competitive share and positioning. Continued R&D investments with inventory planning capabilities are likely to provide potential opportunities in the future.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.88% due to these changes.

VGM Scores

At this time, Badger Meter has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Badger Meter has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.