Wunderlich is out with its report today on Itron (NASDAQ: ITRI), lowering its PT from $38 to $22.
In its report, Wunderlich writes, "We reiterate our Sell rating on Itron, Inc. shares. We believe that once the stimulus-driven meter demand in North America ends, the organic growth for electric meters will turn negative. We don't believe the Street has prepared for this and thus we believe the stock is likely to come under pressure from repeated downward estimate revisions. We've been calling attention to this issue since our January 11 report and we update that report today and add additional tables. We have lowered our 2012 estimates and reviewed our DCF, which sets a new price target at $22, down from $38."
Thank you for the great insight Wunderlich! This tidbit of information was already factored into the share price about 6-9 months ago. The current stall has been driven by the overall economy, Itron has not provided anything concrete to show it is overcoming the slow growth in NA, addressed by recent CEO change. The International division has been growing and Itron is pumped up about its chances to win its share of the French business, despite the Echelon cheerleader.
Ain't no love today, that's for sure. Where is the International business coming from for Itron and what percentage of revenues? I would be excited about the possibilities in France but there is a long way to go and a number of other vendors that are going to be bidding against Itron once the bidding is open to the public.
Wunderlich is one of 24 analysts following ITRI. Of the other 23 analysts, one rates 'sell' and the rest rate 'hold (9), buy (6), or strong buy(7)'.
Wunderlich drops its target from $38 to $22 (note that the consensus of all analysts is $58.) A drop of this magnitude suggests that either their current analysis is grossly wrong (i.e. the drop to $22) or their prior price target of $38 was grossly wrong. Either way, it suggests that Wunderlich does a very poor job of setting price targets.
Wunderlich bases the target on NA meter sales and the stimulus package. Smart meter deployment is not about the stimulus package...it is about increasing revenues through TOU pricing. Utilities will generate more revenue through the ability to charge higher rates at peak demand times. In addition, Itron is not limited to the sale of smart meters in NA, they sell complete systems worldwide. Here is a PR from today relating to deployment in France -
"During the pilot project, Itron delivered 100,000 meters and 3,500 concentrators.....According to the Minister, 7 million Linky meters will initially be deployed in France between 2013 and 2014, followed by an additional 28 million between 2015 and 2018. Itron, a leading global provider of smart metering solutions, has long prepared for this project."
That is 35M meters and AMR units, not to mention the concentrators and meter management software. Assuming average cost per meter (with AMR, concentrators, and software amortized) of $100, this is a $3.5B contract over 7 years, or about $500M/year in revenue....from one contract.
Final comment: if Wunderlich believes that the smart meter market is going no where....where does that leave a company like Echelon that sells the AMR unit? No meter, no AMR.