Badger Meter (BMI) Downgraded to Sell: Should You Dump?
On Jun 20, Zacks Investment Research downgraded Badger Meter Inc. BMI to a Zacks Rank #4 (Sell). Going by the Zacks model, companies carrying a Zacks Rank #4 or 5 (Strong Sell) have strong chances of underperforming the broader market.
Why The Downgrade?
Badger Meter’s gross margin in the first quarter of 2017 was affected as costs of materials, including brass, escalated in the quarter year over year. While higher capacity utilization and product mix remain tailwinds, increasing material cost is likely to continue to hurt margins in the quarters ahead.
The company had a significant order from the Middle East in first-quarter 2016 which did not recur this year. This will adversely affect revenues. Further, it noted that sales from the Middle East were irregular in nature. Also, several large flow instrumentation product sales that occurred in the first quarter of 2016 did not recur in the first quarter of 2017 and overall business remains flat.
In the last one year, Badger Meter has underperformed the Zacks classified Instruments-Control sub-industry with respect to price performance. The stock gained around 13.3%, while the industry rose 14.6%.
Also, Badger Meter’s valuation looks a bit stretched compared with its own range. Looking at the company’s trailing 12-month price earnings (P/E) ratio, investors might not want to pay any further premium. The company currently has a trailing 12-month P/E ratio of 35.60, which is almost near its high of 36.30 in the last one year. Also, Badger Meter’s trailing 12-month price earnings (P/E) ratio is 35.6 is much higher compared with the Zacks categorized Instruments – Control sub industry’s trailing 12-month P/E ratio of 18.86. This implies that the stock is overvalued and hence, we caution the investors against entering the stock at this point.
Badger Meter, Inc. Price and Consensus
Badger Meter, Inc. Price and Consensus | Badger Meter, Inc. Quote
Badger Meter has a negative record of earnings surprises. The company has fallen short of the Zacks Consensus Estimate in the four trailing quarters, resulting in a negative earnings surprise of 2.07%.
Stocks to Consider
Some better-ranked stocks in the same sector are Applied Optoelectronics, Inc. AAOI, AppFolio, Inc. APPF and Nanometrics Incorporated NANO. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Optoelectronics has delivered a whopping average positive earnings surprise of 118.33% in the last four quarters.
AppFolio has delivered an impressive average positive earnings surprise of 75.33% in the trailing four quarters. Nanometrics Incorporated has an average positive earnings surprise of 4.98% in the past four quarters.
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