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Why Is Itron (ITRI) Up 17.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Itron (ITRI). Shares have added about 17.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Itron due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Itron Q3 Earnings Beat Estimates

Itron reported third-quarter 2020 non-GAAP earnings of 61 cents per share, which beat the Zacks Consensus Estimate by 165.2%. Further, the figure improved significantly from 3 cents per share in the previous quarter.

However, the bottom line declined 41.3% from the year-ago quarter due to adverse effects of coronavirus pandemic on the company’s business.

Revenues were $540.2 million, which lagged the Zacks Consensus Estimate of $548 million. Further, the top line increased 6% sequentially but fell 13.5% year over year.

Sluggishness in the demand environment due to ongoing coronavirus pandemic led to year-over-year decline in the top line. Moreover, weak performance of Device Solutions and Networked Solutions was a negative.

Further, operational constraints as a result of COVID-19-led disruptions were headwinds.

Notably, product revenues were $470.7 million (87.1% of total revenues), down 14.9% year over year. Service revenues totaled $69.5 million (12.9%), which decreased 2.9% from the year-ago quarter.

The company’s bookings were $432 million and the backlog totaled $2.8 billion at the end of the reported quarter.

Uncertainties related to COVID-19 are likely to act as headwinds in the days ahead.

Nevertheless, stability in supply chain and logistics remain positive.

Segments in Detail

Device Solutions: The company generated revenues of $176.1 million (32.6% of total revenues) from this segment, down 17% from the year-ago quarter.

Networked Solutions: Revenues from this segment were $306.7 million (56.8% of total revenues), down 14% year over year.

Outcomes: This segment generated revenues of $57.4 million (10.6% of total revenues), up 5% on a year-over-year basis.

Operating Details

For the third quarter, Itron’s gross margin was 26.5%, which contracted 500 basis points (bps) on a year-over-year basis primarily due to manufacturing inefficiencies stemming from the COVID-19 pandemic.

Non-GAAP operating expenses were $113.5 million, down 12.9% year over year. This increase resulted from rising product development investment. As a percentage of revenues, the figure expanded 300 bps year over year to 23.2%.

Further, non-GAAP operating margin came in 5.5%, contracting 510 bps from the year-ago quarter.

Balance Sheet & Cash Flows

As of Sep 30, 2020, cash and cash equivalents totaled $586.2 million, up from $544.8 million as of Jun 30, 2020. Accounts receivables were $386.9 million, down from $411.2 million in the prior quarter.

Long-term debt at the end of the third quarter stood at $1.31 billion compared with $1.32 billion at the end of the second quarter.

Itron generated $45 million of cash from operations in the third quarter compared with $6.9 million million in the prior quarter.

Moreover, the company generated free cash flow $38 million against ($9.6 million) in the last quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -28.29% due to these changes.

VGM Scores

Currently, Itron has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Itron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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