Badger Meter BMI stock has gained 31.9% in the past year, outpacing the S&P 500 composite and the Instruments-Control industry’s 18.4% and 7.1% growth, respectively. 

The stock was up 0.3% yesterday and closed trading at $208.22, down 12.9% from its 52-week high of $239.11. 

BMI Stock Price Performance

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Does this pullback indicate a buying opportunity or investors need to exercise caution? Let us discuss BMI’s pros and cons, and determine the best course of action for your portfolio.

Increasing Demand Bodes Well for BMI

Demand for digital smart water solutions has been increasing due 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. 

Sales in the fourth quarter of 2024 grew 12.5% year over year to $205.2 million, driven by higher sales in the utility water and flow instrumentation segments. In 2024, the company achieved an 18% increase in sales, exceeding $800 million in revenues, with a five-year compound annual growth rate of 14%. It reported revenues of $826.6 million for 2024, up 18% from 2023.

In the last reported quarter, utility water sales rose 14% due to continued robust adoption across the BlueEdge suite by utility customers. In May 2024, the company introduced the BlueEdge framework to streamline its comprehensive suite of scalable water solutions. 

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.

Regulatory pressures, aging infrastructure and climate-related extreme weather events are driving the adoption of smart water technologies, creating a favorable backdrop for BMI's products and services. Some macroeconomic factors, such as the need for replacement-driven demand, the rise of AMI adoption and increasing demand for real-time data visualization and analytics are additional tailwinds. The company's long-term expected guidance of high-single-digit top-line growth is supported by a strong order book and pipeline of opportunities. 

BMI’s Improving Margins

In the fourth quarter, gross profit was $82.8 million, up 15.8% year over year. The gross margin was 40.3%, up 110 basis points year over year. The improvement highlights the advantages of a favorable sales mix, particularly with robust sales in AMI and software. This positive trend is further supported by effective pricing strategies, cost management and strong operational performance.

Operating earnings were $39.2 million or 19.1% of sales compared with $32.1 million or 17.6% in the year-ago quarter. SEA leverage improved 21.2% compared with 21.6% in the prior-year quarter.

BMI’s Robust Liquidity

As of Dec. 31, 2024, the company had $295.3 million of cash and cash equivalents and $118.2 million of total current liabilities compared with the respective figures of $259 million and $129.2 million as of Sept. 30, 2024. The company reported a record quarterly free cash flow of $47.4 million, which increased 32% year over year, 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 recently acquired SmartCover Systems from XPV Water Partners for a $185 million all-cash deal. SmartCover is a leading provider of water collection system monitoring solutions across North America.

With $35 million in annual revenues, SmartCover provides sensors, software and services that enable utilities to monitor sewer levels 24/7, detect potential issues and prevent sewer overflows, reducing costs and protecting public health. Its technology also minimizes the need for frequent cleanings, detects inflow and infiltration, prevents intrusion and reduces harmful sewer gases. 

Earlier, in 2024, the company expanded its solutions portfolio by acquiring select remote water monitoring hardware and software solutions from Trimble, including the Telog brand of remote telemetry units and Trimble Unity Remote Monitoring software.

Several Challenges Remain for BMI

Rising expenses and intense competition amid an uncertain macroeconomic backdrop remain concerns. 

In the fourth quarter of 2024, SEA expenses were $43.5 million compared with $39.4 million in the prior-year quarter. The rise was due to increased headcount, personnel-related expenses and acquisition costs linked to the acquisition of SmartCover. SEA was up 8.2% in 2024 year over year. Increasing expenses amid a volatile global macroeconomic environment are likely to dent Badger Meter’s margins, thereby hurting its financial performance. 

BMI’s Expensive Stock Valuation is a Concern

The BMI stock is trading at a premium, with a forward 12-month Price/Earnings of 43.71X compared with the industry’s 18.17X. 

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Downward Earnings Estimate Revision for BMI

In the past 60 days, analysts have downgraded earnings estimates unchanged for the current quarter and current year. 

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How to Strategize Investment in BMI

Strong financial performance, strategic initiatives, favorable demand trends and appealing dividend policy make BMI an attractive investment opportunity. Nonetheless, elevated macroeconomic volatility, increasing operating expenses and integration challenges remain concerns. Downward estimate revision activity and expensive valuation keep us on the sidelines. 

Therefore, we believe new investors should wait for a better entry point and existing investors should retain the BMI stock, which currently carries a Zacks Rank #3 (Hold). 

Other Stocks to Consider

Better-ranked stocks worth consideration from the broader technology space are Watts Water Technologies WTS, InterDigital, Inc. IDCC and Celestica Inc. CLS. IDCC and CLS presently sport a Zacks Rank #1 (Strong Buy) while WTS carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for WTS’ 2025 EPS is pegged at $9.08, unchanged in the past seven days. WTS earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 6.23%. Its shares have increased 7.1% in the past year. 

The Zacks Consensus Estimate for IDCC’s 2025 earnings is pegged at $9.30 per share, unchanged in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with the average surprise being 158.4%. Its shares have surged 95% in the past year.

The Zacks Consensus Estimate for CLS’ 2025 EPS is pegged at $4.78, improved 3 cents in the past seven days. CLS earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while matching one occasion, with the average surprise being 10.27%.

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Badger Meter, Inc. (BMI) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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