BUSINESS
Itron, Inc., a technology and service company, provides end-to-end solutions that help manage operations in the energy, water, and smart city space worldwide. The company operates through three segments: Device Solutions, Networked Solutions, and Outcomes. The Device Solutions segment offers hardware products that are used for measurement, control, or sensing. The Networked Solutions segment provides a combination of communicating devices, such as smart meters, modules, endpoints, and sensors; network infrastructure; and associated application software for acquiring and transporting application-specific data.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, ITRI is expected to continue to be an important Value Builder.
Itron has a current Value Trend Rating of C (Low Neutral).
The Value Trend Rating reflects very contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. Itron has a poor Appreciation Score of 16 but a good Power Rating of 80, resulting in the Low Neutral Value Trend Rating.
Itron’s stock is selling significantly above targeted value. The current stock price of $91.46 compares to targeted value 12 months forward of $45.
Itron’s low appreciation potential results in an appreciation score of 16 (84% of the universe has greater appreciation potential.)
Itron has a Power Rating of 80. (This good Power Rating indicates that Itron has a better chance of achieving attractive investment performance over the near to intermediate term than all but 20% of companies in the universe.)
Factors contributing to this good Power Rating include: the Totalizing Fluid Meters comparison group is in an extremely strong phase currently; the recent trend in Itron’s earnings estimates has been extremely favorable; and recent price action has been slightly favorable.
INVESTMENT PROFILE
Itron’s financial strength is average. Financial strength rating is 43.
Relative to the S&P 500 Composite, Itron Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that ITRI is higher risk. Relative weaknesses include: low historical profitability, low financial strength, high stock price volatility, low historical growth, and high earnings variability. Itron’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. ITRI has unusually low market capitalization.
CURRENT SIGNALS
Itron’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Itron’s current technical position is very strong. The stock price is in a 3.7 month up move. The stock has appreciated 33.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Itron Inc (NASDAQ: ITRI) has benefited from notable positive changes in investment behavior: the stock rose on very heavy volume.
Recent small positive changes in fundamentals have benefitted Itron Inc (NASDAQ: ITRI): significant quarterly earnings acceleration occurred.
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
For its fourth fiscal quarter (ending December 31), Itron Inc (NASDAQ: ITRI) has reported a 100% increase in E.P.S. from $0.49 a year ago to $0.98 in the current quarter. This performance was $0.23 better than the consensus estimate of $0.75. E.P.S. were $2.13 for the latest four quarters through December 31 versus $-0.22 for the same period a year ago.
Itron Inc (NASDAQ: ITRI) stock enjoyed a major increase of 22.1% on 2/26/24. The shares closed at $91.46. Moreover, trading volume in this advance was exceptionally high at 643% of normal. The stock has been strong relative to the market over the last nine months and has risen 18.2% during the last week.
CASH FLOW
In 2022, Itron generated a significant increase in cash of +$39.43 million (+24%). Sources of cash were larger than uses. Cash generated from 2022 EBITDA totaled +$90.07 million. Non-operating uses consumed -$32.52 million (-36% of EBITDA). Cash taxes contributed +$5.03 million (+6% of EBITDA). Re-investment in the business amounted to -$67.28 million (-75% of EBITDA). On a net basis, debt investors received -$18.00 million (-20% of EBITDA) while equity investors supplied +$62.13 million (+69% of EBITDA).
Itron’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Itron Peer Group. In most years, Itron was in the third quartile and lower quartile. Currently, Itron is below median at -36% of EBITDA (-$32.52 million).
Itron’s Cash Taxes, %EBITDA enjoyed a strong overall uptrend over the period. This improvement was accompanied by stability for the Itron Peer Group. In most years, Itron was in the top quartile and lower quartile. Currently, Itron is upper quartile at +6% of EBITDA (+$5.03 million).
Itron’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Itron Peer Group. In most years, Itron was in the second quartile and top quartile. Currently, Itron is slightly below median at -75% of EBITDA (-$67.28 million).
Itron’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Itron Peer Group. In most years, Itron was in the top quartile and lower quartile. Currently, Itron is below median at -20% of EBITDA (-$18.00 million).
Itron’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Itron Peer Group. In most years, Itron was in the top quartile and lower quartile. Currently, Itron is at the upper quartile at +69% of EBITDA (+$62.13 million).
Itron’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Itron Peer Group. In most years, Itron was in the third quartile and top quartile. Currently, Itron is at the upper quartile at +44% of EBITDA (+$39.43 million).
Itron’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Itron Peer Group. In most years, Itron was in the lower quartile and third quartile. Currently, Itron is at the lower quartile at +11%.
PROFITABILITY
Itron’s return on equity has eroded very significantly since 2015. The current level is 6.0% versus the high of 2.1% and the low of -13.9%.
This very significant erosion was due to very strong negative trend in pretax operating return and strong positive trend in non-operating factors.
The productivity of Itron’s assets declined over the full period 2013-2023: asset turnover has suffered a very strong overall downtrend.
Reinforcing this trend, pretax margin experienced a strong overall downtrend even as it experienced a very sharp recovery after the 2021 low.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
Itron’s return on equity is at median (6.0%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is slightly below median (3.5%) reflecting asset turnover that is below median (0.82X) and at median pretax margin (4.3%).
Tax “keep” rate (income tax management) is slightly above median (84.3%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is lower quartile (2.03X).
GROWTH RATES
Overall, Itron’s growth rate has slowed very considerably in recent years.
Itron’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been -1.4% per year. (More recently it has been -8.9%.)
Total asset growth has been 2.9% per year. (More recently it has been -5.9%.)
Annual E.P.S. growth has been 18.5% per year.
Equity growth has been 4.0% per year. (More recently it has been 7.1%.)
Itron’s consensus growth rate forecast (average of Wall Street analysts) is 23.0% — substantially above the average of the historical growth measures.
Relative to the Itron Peer Group, Itron’s historical growth measures are generally second quartile. Total asset growth (2.9%) has been at the upper quartile. Equity growth (4.0%) has been substantially above median. E.P.S. growth (18.5%) has been at median. Revenue growth (-1.4%) has been substantially below median.
In agreement with this pattern, consensus growth forecast (23.0%) is at the upper quartile.
PRICE HISTORY
Over the full time period, Itron’s stock price performance has been variable and below market. Between April, 2013 and February, 2024, Itron’s stock price rose +131%; relative to the market, this was a -27% loss. Significant price moves during the period: 1) February, 2021 – February, 2022: -59%; 2) March, 2020 – February, 2021: +110%; and 3) August, 2015 – October, 2017: +160%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 25.5% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 25.5% is slightly above median relative to Itron Inc Peer Group.
Current 5-year total return performance of 5.7% is below median relative to the S&P 500 Composite.
Through January, 2024, with below median current 5-year total return of 5.7% relative to S&P 500 Composite, Itron’s total return performance is at median relative to Itron Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ITRI’s overall valuation is high. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Ratio of enterprise value/assets is slightly above median. Price/equity ratio is slightly above median. The lowest factor, the ratio of enterprise value/revenue, is near the lower quartile.
Relative to Itron Peer Group, ITRI’s overall valuation is normal. The highest factor, the price/earnings ratio, is above median. Ratio of enterprise value/earnings before interest and taxes is at median. Ratio of enterprise value/revenue is at median. Ratio of enterprise value/assets is at median. The lowest factor, the price/equity ratio, is below median.
Itron has a major value gap compared to median valuation. For ITRI to fall to lower quartile valuation, its current ratio of enterprise value/revenue would have to decline from the current level of 2.25X to 1.17X. If ITRI’s ratio of enterprise value/revenue were to decline to 1.17X, its stock price would be lower by $-49 to $42.
For ITRI to achieve upper quartile valuation relative to the Itron Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.25X to 3.10X. If ITRI’s ratio of enterprise value/revenue were to rise to 3.10X, its stock price would increase by $39 from the current level of $91.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, ITRI is expected to continue to be an important Value Builder.
Itron’s current Price Target of $45 represents a -51% change from the current price of $91.46.
Itron’s low appreciation potential results in an appreciation score of 16 (84% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 16, the high Power Rating of 80 results in an Value Trend Rating of C.
Itron’s current Price Target is $45 (+17% from the 2022 Target of $38 but -51% from the 02/26/24 price of $91.46). This slight rise in the Target is the result of a -4% decrease in the equity base and a +22% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a huge positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 13.0% — above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is well above the 2015 low of 7%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2018 and 2022. The current forecast is well below the 2019 peak of 7%.
PTR’s cost of equity forecast is 7.4% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2014 and 2022. The current forecast is above the 2015 low of 4.4%.
At Itron’s current price of $91.46, investors are placing a positive value of $36 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 4.0% versus a cost of equity of 2.8%.
PTR’s 2024 Price Target of $45 is based on these forecasts and reflects an estimated value of existing assets of $60 and a value of future investments of $-15.
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