Badger Meter (BMI) Up 2.9% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Badger Meter, Inc. (NYSE:BMI) . Shares have added about 2.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is BMI 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's Q4 Earnings Beat, Sales Miss Estimates

Badger Meter posted record earnings of 25 cents per share in fourth-quarter 2017, up 19% year over year. In addition, earnings beat the Zacks Consensus Estimate of 23 cents.

Sales in the quarter increased 3.8% year over year to a record $96.7 million, but fell short of the Zacks Consensus Estimate of $97 million. The year-over-year growth was driven by the positive impact from sales of new products, higher municipal water sales volume and continued improvement in key flow instrumentation markets, such as oil and gas.

Notable, Badger Meter’s sales exceeded the $400-million threshold for the first time in 2017, primarily driven by growth of new technologies and continued improvement in industrial markets.

Cost and Margins

Cost of sales decreased 3% year over year to $57.6 million. Gross profit in the reported quarter came in at $39 million, up 16% from $33.5 million recorded in the year-earlier quarter. Gross margin came in at 40.4%, expanding 440 basis points (bps) from the year-ago quarter despite elevated brass costs.

Selling, engineering and administration expenses went up marginally to $25.9 million from $24.4 million in the prior-year quarter due to acquisition expenses, commissions and employee incentives, as well as higher professional services fees. Operating income grew 9.6% to $13.2 million from $9.1 million recorded in the comparable quarter last year. Consequently, operating margin advanced 380 bps to 13.6%.

Financial Position

Badger Meter reported cash and cash equivalents of $11.2 million at the end of fourth-quarter 2017, up from $7.3 million recorded at year-end 2016. The company recorded receivables of $58.2 million at the fourth-quarter end compared with $59.8 million as of Dec 31, 2016. Inventories were $85.2 million at the end of the reported quarter compared with $77.7 million as of Dec 31, 2016.

2017 Performance

Badger Meter reported record earnings per share of $1.19 in 2017, up 7.2% from $1.11 per share recorded in the prior year. Earnings also outpaced the Zacks Consensus Estimate of $1.18. Revenues grew 2.2% year over year to $402.4 million from $393.8 million recorded in 2016. However, it missed the Zacks Consensus Estimate of $403 million.

Outlook

Badger Meter is poised to gain from growing demand for E-Series meters and ORION cellular endpoints, as well as BEACON Advanced Metering Analytics (AMA) managed solution in the near future. It expects that its leadership position in North American water metering, improving position in global flow instrumentation technologies and a more favorable domestic tax environment will drive the company’s performance over the long run.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 26.8% due to these changes.

VGM Scores

Currently, BMI has an average Growth Score of C, though it is lagging a bit on the Momentum front with a D. The stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise BMI has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.