Badger Meter BMI stock has gained 39.5% in the past year outpacing the S&P 500 composite and the sub-industry’s 26.4% and 0.5% growth, respectively. It has also outperformed the broader Zacks Computer and Technology sector’s growth of 34.2%.
Price Performance
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The stock was down 2.1% on Friday and closed trading at $215.45, down 10% from its 52-week high of $239.11.
Does this pullback indicate a buying opportunity? Let us dive into BMI’s prospects and determine your portfolio's best course of action.
Will BMI Sustain Momentum in 2025?
Demand for digital smart water solutions has been increasing attributed to secular challenges in the water industry. This has been driving strong adoption of BMI’s differentiated smart water solutions, including higher uptake of meters (both mechanical and E-Series Ultrasonic), ORION Cellular endpoints and associated BEACON Software-as-a-Service (SaaS) revenues.
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.
Badger Meter is continuously prioritizing and enhancing its presence in selected regional markets outside the United States that offer healthy growth potential. The company is likely to benefit by expanding its market share in water-related applications.
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In May 2024, the company introduced the BlueEdge framework to streamline its comprehensive suite of scalable water solutions. In the third quarter, utility water sales rose 14% due to continued robust adoption across the BlueEdge suite of solutions by utility customers. 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.
However, management noted that hurricane recovery activity might delay some Southeast U.S. utility projects in the near term. This introduces an element of uncertainty for BMI. Although BMI added that it is too early to quantify the impact, this unpredictability may raise concerns about the company’s ability to deliver steady growth in the short term.
BMI expects fewer customer operating days in the fourth quarter due to the holiday season, which could lead to reduced sales growth. Moreover, due to tougher year-over-year comparison as well as strong but normalizing demand trends, BMI noted that it now expects to deliver high single-digit sales growth rates going ahead.
BMI’s Improving Margins
A favorable sales mix and selling, engineering and administration (“SEA”) expense leverage are driving margin performance. In the third quarter, gross profit was $83.9 million, up 15.3% year over year. The gross margin was 40.2%, up 110 basis points year over year. SEA leverage improved 20.8% compared with 22.2% in the prior-year quarter.
BMI’s Robust Liquidity
A debt-free balance sheet is another positive. As of Sept. 30, 2024, Badger Meter had $259 million in cash and cash equivalents with no long-term debt. In third-quarter 2024, the company reported a record quarterly free cash flow of $42 million compared with $28.4 million a year ago, indicating improved earnings and working capital management. 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 and via strategic tuck-in acquisitions.
BMI's Appealing Dividend Policy
In August 2024, Badger Meter announced a 26% hike in its quarterly dividend to 34 cents per share. The new annual dividend for common stock is $1.36 per share. The hike marks 32 successive years of dividend increases. Its dividend payout ratio is 0.34.
Here’s Why Investors Should Add BMI Stock
Strong financial performance, strategic initiatives, favorable demand trends and appealing dividend policy make BMI an attractive investment opportunity. Given the recent pullback from its 52-week high, investors have an opportunity to invest in this Zacks Rank #2 (Buy) stock. Apart from a favorable rank, BMI has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or 2 and a Growth Score of A or B offer solid investment opportunities.
Other Stocks to Consider
Other stocks worth consideration from the broader technology space are Fortinet FTNT, InterDigital, Inc. IDCC and Five9, Inc. FIVN, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FTNT’s 2024 EPS is pegged at $2.23, unchanged in the past seven days. FTNT’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 23.6%. Its shares have increased 64% in the past year.
The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, unchanged in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 79.6% in the past year.
The Zacks Consensus Estimate for FIVN’s 2024 EPS is pegged at $2.37, unchanged in the past seven days. Five9’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 22.46%.
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