Itron (NASDAQ: ITRI) provides metering, data collection, and utility software services worldwide. Itron has been hit hard in the past 6 months, as many investors have been avoiding the stock due to concerns that its competitive position, particularly in automated-meter infrastructure, is insecure. Since February shares have fallen 46%, dropping from $60 to under $30. I think however we have seen the bottom, when shares hit $26.40 on October 4, 2011. I have been monitoring the stock ever since to make sure it didn’t fall even more and I have come to the conclusion that $30 has become a support level that shares won’t fall below again. While the stock’s past performance has been nothing to showcase I believe the potential is something we should showcase.
Itron has beaten consensus earnings expectations for four consecutive quarters. I expect this trend to continue as sales increase in both 2011 and 2012. In addition, I believe the company has many strong suits and growth opportunities, below are 10 reasons I believe ITRI will rise higher:
10 Reasons ITRI’s ready to succeed
- International business will gain traction and significantly grow in the next several years.
- Advanced Metering Infrastructure (AMI) will be a focus of ITRI’s as I believe there is huge room for potential new AMI contracts in Europe.
- Emerging markets expansion. ITRI is heavily focusing on expanding into the emerging markets, heavily focusing on India and Africa.
- Grow own businesses. ITRI is focused on expanding its gas and water businesses significantly.
- Backlogged contracts. ITRI currently holds upwards of $1.6 billion in backlogged contracts, something that will only help increase future earnings and lead Itron to beating consensus earnings for a fifth consecutive quarter.
- 16% total market share. While some investors have concerns about Itron’s competitive advantage, statistics show otherwise. Besides being profitable as a mid-cap stock in a large-cap game, Itron has still managed to capture 16% of the total market share, significantly higher than what many have thought.
- 60% discount compared with its peers, that’s what Itron is trading at as it holds a cash-flow multiple of 10.
- Multi-year low. Itron is trading an a 5-year low, which I believe points further in the right direction helping support my thoughts of $30 being a support level.
- 60% Buy Rating. Wall Street Analysts predict in 12-months the stock will be trading anywhere between $55-$95.
- Cash Flow. ITRI continues to focus on lowering debt. From 2010 to 2011, total debt for the company decreased from $782 million to $611 million while holding $541 million in cash. This improvement should give the company some financial flexibility if it chooses to aggressively expand through opportunistic acquisitions.
Final outlook for Itron
Overall I believe Itron is a solid investment and I recommend you buy the stock as I believe shares are attractively valued compared with historical numbers. (Still look at $30 as a strong support level for ITRI's shares). ITRI has strong business prospects, an improving balance sheet, improved efficiency leading to increased earnings, and growth opportunities in Emerging markets. Overall I believe ITRI shares will rise all the way to $65 per share in the next 12-months, for a total yield of 95%. A potential ten-bagger is what we have indeed.
Disclosure: I am long ITRI.