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Badger Meter (BMI) Surges 25% in 6 Months: Is it Still a Buy?
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Badger Meter (BMI - Free Report) stock continues its upward trajectory, with an appreciation of 24.6% in the past six months compared with the S&P 500 composite and sub-industry’s growth of 8.3% and 8%, respectively.
BMI’s stock also has outperformed peers in the industry in the past six months. While Watts Water Technologies (WTS - Free Report) stock dropped 9.5%, shares of Woodward (WWD - Free Report) and Transcat (TRNS - Free Report) have moved up 12.8% and 7%, respectively.
Price Performance
Image Source: Zacks Investment Research
Solid financial performance is buoying the stock’s trajectory. BMI’s earnings beat estimates in each of the last four quarters, delivering an average surprise of 12.9%.
Image Source: Zacks Investment Research
Technical indicators are also supportive of BMI’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and confidence in its growth prospects.
Image Source: Zacks Investment Research
The company is currently trading at a nearly 7.5% discount to its 52-week high of $210.30, reached on Jul 29, 2024. This pullback from the peak might offer a strategic buying opportunity for investors looking to capitalize on potential future gains.
Key Growth Catalysts
Demand for Badger Meter’s innovative smart water solutions is gaining from underlying secular growth drivers. In the last reported quarter, sales jumped 23% year over year to $216.7 million, representing the first quarter with sales of more than $200 million. Apart from stable demand, smooth operational execution and accretive customer backlog conversion acted as tailwinds.
Utility water sales increased 26% on the back of strong AMI demand (including ORION Cellular endpoints, BEACON SaaS and mechanical and E-Series Ultrasonic meters). Stable demand across water-focused end markets boosted Flow Instrumentation sales, which were up 5% year over year.
A favorable sales mix and selling, engineering and administration (SEA) expense leverage are driving margin performance.
In the second quarter, SEA leverage improved to 20.2% compared with 22.7% in the prior-year quarter. Operating earnings were $41.6 million or 19.2% of sales compared with $29.5 million or 16.8% of sales in the year-ago quarter.
The company recently introduced the BlueEdge framework to simplify its comprehensive suite of scalable water solutions. BlueEdge platform is an umbrella term that combines water technology, software and services to enhance customer experience with efficient water management. Blue Edge can be customized to address applications for the entire water cycle and will also serve as a ‘strategic lens’ for the company to assess growth investments.
Various favorable macroeconomic drivers for the water industry growth, along with a strong opportunity funnel, bid pipeline, order book rates and increasing SaaS revenues, bode well for the long term.
However, management expects to witness tougher year-over-year sales comparisons as the year progresses and expects higher expenses owing to accretive investment strategies.
Sufficient Liquidity
A debt-free balance sheet is another positive. As of Jun 30, 2024, Badger Meter had $226.2 million in cash and cash equivalents with no long-term debt. In second-quarter 2024, the company generated $36.4 million of net cash from operating activities compared with $22.8 million a year ago.
Badger Meter is likely to benefit from a strong cash position driven by solid earnings conversion. It intends to utilize the cash flow to reinvest in the business, both organically through R&D (research and development) and via strategic tuck-in acquisitions.
Dividend Aristocrat
Recently, Badger Meter announced a 26% hike in its quarterly dividend to 34 cents. The new annual dividend for common stock now stands at $1.36 per share. The hike marks 32 successive years of dividend increases. Its dividend payout ratio stands at 0.28.
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around BMI, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next quarter by three and one cents to $1.00 and 96 cents per share, respectively. These estimates indicate expected year-over-year growth rates of 13.6% and 14.3%, respectively.
Image Source: Zacks Investment Research
Expensive Valuation
From a valuation perspective, BMI is trading at a relatively expensive level. Going by its forward 12-month price-to-earnings ratio, Badger Meter is trading at a multiple of 0.44X, slightly below its median of 0.45X over the last five years. The company is trading at a premium compared with the industry’s ratio of 0.19X.
Image Source: Zacks Investment Research
Wrapping Up
While the stock's premium valuation may warrant caution, BMI’s consistent sales growth, healthy balance sheet, and strategic initiatives suggest that there might still be room for further growth. Given the recent pullback from its 52-week high, investors have an opportunity to invest in this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Badger Meter (BMI) Surges 25% in 6 Months: Is it Still a Buy?
Badger Meter (BMI - Free Report) stock continues its upward trajectory, with an appreciation of 24.6% in the past six months compared with the S&P 500 composite and sub-industry’s growth of 8.3% and 8%, respectively.
BMI’s stock also has outperformed peers in the industry in the past six months. While Watts Water Technologies (WTS - Free Report) stock dropped 9.5%, shares of Woodward (WWD - Free Report) and Transcat (TRNS - Free Report) have moved up 12.8% and 7%, respectively.
Price Performance
Image Source: Zacks Investment Research
Solid financial performance is buoying the stock’s trajectory. BMI’s earnings beat estimates in each of the last four quarters, delivering an average surprise of 12.9%.
Image Source: Zacks Investment Research
Technical indicators are also supportive of BMI’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and confidence in its growth prospects.
Image Source: Zacks Investment Research
The company is currently trading at a nearly 7.5% discount to its 52-week high of $210.30, reached on Jul 29, 2024. This pullback from the peak might offer a strategic buying opportunity for investors looking to capitalize on potential future gains.
Key Growth Catalysts
Demand for Badger Meter’s innovative smart water solutions is gaining from underlying secular growth drivers. In the last reported quarter, sales jumped 23% year over year to $216.7 million, representing the first quarter with sales of more than $200 million. Apart from stable demand, smooth operational execution and accretive customer backlog conversion acted as tailwinds.
Utility water sales increased 26% on the back of strong AMI demand (including ORION Cellular endpoints, BEACON SaaS and mechanical and E-Series Ultrasonic meters). Stable demand across water-focused end markets boosted Flow Instrumentation sales, which were up 5% year over year.
A favorable sales mix and selling, engineering and administration (SEA) expense leverage are driving margin performance.
In the second quarter, SEA leverage improved to 20.2% compared with 22.7% in the prior-year quarter. Operating earnings were $41.6 million or 19.2% of sales compared with $29.5 million or 16.8% of sales in the year-ago quarter.
The company recently introduced the BlueEdge framework to simplify its comprehensive suite of scalable water solutions. BlueEdge platform is an umbrella term that combines water technology, software and services to enhance customer experience with efficient water management. Blue Edge can be customized to address applications for the entire water cycle and will also serve as a ‘strategic lens’ for the company to assess growth investments.
Various favorable macroeconomic drivers for the water industry growth, along with a strong opportunity funnel, bid pipeline, order book rates and increasing SaaS revenues, bode well for the long term.
However, management expects to witness tougher year-over-year sales comparisons as the year progresses and expects higher expenses owing to accretive investment strategies.
Sufficient Liquidity
A debt-free balance sheet is another positive. As of Jun 30, 2024, Badger Meter had $226.2 million in cash and cash equivalents with no long-term debt. In second-quarter 2024, the company generated $36.4 million of net cash from operating activities compared with $22.8 million a year ago.
Badger Meter is likely to benefit from a strong cash position driven by solid earnings conversion. It intends to utilize the cash flow to reinvest in the business, both organically through R&D (research and development) and via strategic tuck-in acquisitions.
Dividend Aristocrat
Recently, Badger Meter announced a 26% hike in its quarterly dividend to 34 cents. The new annual dividend for common stock now stands at $1.36 per share. The hike marks 32 successive years of dividend increases. Its dividend payout ratio stands at 0.28.
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around BMI, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next quarter by three and one cents to $1.00 and 96 cents per share, respectively. These estimates indicate expected year-over-year growth rates of 13.6% and 14.3%, respectively.
Image Source: Zacks Investment Research
Expensive Valuation
From a valuation perspective, BMI is trading at a relatively expensive level. Going by its forward 12-month price-to-earnings ratio, Badger Meter is trading at a multiple of 0.44X, slightly below its median of 0.45X over the last five years. The company is trading at a premium compared with the industry’s ratio of 0.19X.
Image Source: Zacks Investment Research
Wrapping Up
While the stock's premium valuation may warrant caution, BMI’s consistent sales growth, healthy balance sheet, and strategic initiatives suggest that there might still be room for further growth. Given the recent pullback from its 52-week high, investors have an opportunity to invest in this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.