On Tuesday, Canaccord Genuity changed its stance on Itron (NASDAQ:ITRI), lifting the rating from Hold to Buy and significantly increasing the price target to $105 from the previous $68. The decision comes with the anticipation that Itron will convert roughly 30% of its backlog, which has not been re-priced to account for inflation, into revenue throughout 2024.
The company is also in the midst of restructuring efforts, which include the closure of two factories within the Q4/24-Q1/25 period. Management expects that the closure of these plants, coupled with working through the remaining low-margin backlog, will lead to an improved gross margin (GM) profile by 2025.
Itron's utility customers are facing challenges with increasing demands and extreme weather conditions impacting electrical, water, and gas grids.
These pressures have led to sustained spending as utilities seek to address these issues. Furthermore, the supply chain, which has previously affected shipment activities, is expected to pose less of an obstacle in 2024, thus allowing for higher delivery volumes.
The new price target set by Canaccord Genuity is based on a 19.5x enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple. This multiple is applied to the projected 2024 earnings estimate of $256 million, which is slightly above the three-year average multiple of 17.8x.
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