Canaccord: Badger Meter Has Positive Catalysts, Balanced Risk-Reward

Badger Meter, Inc. BMI, a manufacturer of flow measurement and control technologies, is likely to benefit from a healthy overall outlook for the North American metering market as well as its latest product offerings, according to Canaccord Genuity. 

The Analyst

Analyst Chip Moore upgraded shares of Badger Meter from Sell to Hold and increased the price target from $40 to $44.

The Thesis

The downside risk for Badger Meter is lower due to a more favorable domestic municipal market and continued momentum for oil, gas and industrial applications, Moore said in the upgrade note. Favorable weather in the second quarter is another a positive, the analyst said. 

While Badger's technology and overall market positioning is likable, the stock's valuation is at the higher end of historical ranges, giving it a balanced risk-reward profile, Moore said. 

Canaccord projects that price increases will help offset the impact of rising commodity costs. A lower tax rate would give Badger additional competitive flexibility, Moore said. 

Several other initiatives are expected to incrementally benefit profitability in late 2018, the analyst said. 

Badger's second-quarter gross margin is likely to contract 120 basis points year-over-year to 38.2 percent, but increase 320 basis points sequentially as the price of copper approaches multiyear highs, according to Canaccord. 

Badger's Q2 report is  scheduled for July 18 after the close. Canaccord forecast revenue and earnings per share of $112 million and 41 cents, respectively, compared to consensus estimates that call for revenue of $111.9 million and EPS of 40 cents.

The Price Action

Badger Meter shares have lost about 5.1 percent year-to-date.

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