With Expectations Of Faster Organic Growth, Cowen Upgrades Itron

Water resources name Itron, Inc. ITRI is poised to benefit from additional capex spending, according to Cowen. 

The Analyst

Cowen analyst Jeffrey Osborne upgraded shares of Itron from Market Perform to Outperform and increased the price target from $80 to $84.

The Thesis

Itron's stock has worked the past two years largely on the basis of "self-help" initiatives rather than organic growth, Osborne said in a Thursday note. But new capex spending on Itron's distribution grid in North American, Europe, the Middle East, Africa and southeast Asia could change that, he said. 

The analyst sees spending shifting toward distribution automation and software analytics — areas the combined Itron and Silver Spring Networks, or SSNI is prepared to address. 

The SSNI acquisition is progressing well, and the combined company backlog is near $3 billion, the analyst said. The 1.5 times book-to-bill for Itron organically suggests an acceleration in Itron's electric gas, and water markets, according to Cowen. 

"While our bullishness largely lies in the electric area, management was very constructive on 2018 and water trends," Osborne said.

With backlog and awarded projects growing in recent quarters, Itron has delivered with cost cuts and exits from low-margin electric meter product lines, Osborne said. This could lead to faster earnings per share growth relative to top-line growth in 2017, he said. 

"The self-help restructuring story has driven the stock in '16/'17 and we see organic growth accelerating evidenced by the BTB of 1.5x." 

The Price Action

Itron shares are up 8 percent over the past year and were up 6.71 percent at $74.70 at the time of publication Thursday afternoon. 

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