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
ITRI’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Itron has a current Value Trend Rating of C (High Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Itron has a poor Appreciation Score of 28 but a very high Power Rating of 94, resulting in the High Neutral Value Trend Rating.
Itron’s stock is selling significantly above targeted value. The current stock price of $89.43 compares to targeted value 12 months forward of $59.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
Itron has a Power Rating of 94. (This very high Power Rating indicates that Itron has a better chance of achieving attractive investment performance over the near to intermediate term than all but 6% of companies in the universe.)
Factors contributing to this very high Power Rating include: the recent trend in Itron’s earnings estimates has been extremely favorable; the Totalizing Fluid Meters comparison group is in a strong phase currently; and recent price action has been favorable.
INVESTMENT PROFILE
Itron’s financial strength is average. Financial strength rating is 49.
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: declining pretax margin; and falling leverage.
Itron’s current technical position is very strong. The stock price is in a 4.4 month up move. The stock has appreciated 66.1% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Important positive changes in Itron Inc (NASDAQ: ITRI) fundamentals have recently occurred: the consensus estimate for December, 2025 increased significantly, the consensus estimate for December, 2024 increased significantly, and significant quarterly earnings acceleration occurred.
The stock is currently rated C.
Itron Inc (NASDAQ: ITRI) stock closed at $89.43 on 3/22/24 after a slight decline of -0.8%. However, unusually low trading volume at 56% of normal accompanied the decline. The stock has risen 2.5% during the last week and has been exceptionally strong relative to the market over the last nine months.
CASH FLOW
In 2023, Itron generated a very significant increase in cash of +$100.0 million (+50%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$229.4 million. Non-operating uses consumed -$39.3 million (-17% of EBITDA). Cash taxes consumed -$29.2 million (-13% of EBITDA). Re-investment in the business amounted to -$87.6 million (-38% of EBITDA). On a net basis, debt investors removed -$18.7 million (-8% of EBITDA) while equity investors furnished +$45.5 million (+20% of EBITDA).
Itron’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Itron Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Itron was in the second quartile and top quartile. Currently, Itron is at median at -17% of EBITDA (-$39.3 million).
Itron’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Itron Peer Group. (Since 2021 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Itron was in the top quartile and lower quartile. Currently, Itron is substantially above median at -13% of EBITDA (-$29.2 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 lower quartile. Currently, Itron is slightly above median at -38% of EBITDA (-$87.6 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. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Itron was in the third quartile and second quartile. Currently, Itron is slightly below median at -8% of EBITDA (-$18.7 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. (Since 2021 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Itron was in the second quartile and top quartile. Currently, Itron is above median at +20% of EBITDA (+$45.5 million).
Itron’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Itron Peer Group. (Since 2021 Change in Cash, %EBITDA has accelerated very sharply.) In most years, Itron was in the third quartile and top quartile. Currently, Itron is at the upper quartile at +44% of EBITDA (+$100.0 million).
Itron’s Cash, %Revenue has exhibited a very small 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 lower quartile and third quartile. Currently, Itron is at median at +14%.
PROFITABILITY
Itron’s return on equity has eroded very significantly since 2015. The current level is 7.4% 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 2014-2023: asset turnover has suffered a very strong overall downtrend.
Reinforcing this trend, pretax margin experienced a strong overall downtrend but 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 (7.4%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is slightly above median (4.9%) reflecting asset turnover that is below median (0.83X) and slightly above median pretax margin (5.9%).
Tax “keep” rate (income tax management) is below median (76.1%) resulting in after tax return on assets that is slightly above median.
Financial leverage (leverage) is lower quartile (1.99X).
GROWTH RATES
Overall, Itron’s growth rate has slowed 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 -1.5% per year.
Total asset growth has been 2.8% per year. (More recently it has been -3.3%.)
Annual E.P.S. growth has been 16.8% per year. (More recently it has been 67.7%.)
Equity growth has been 6.2% per year.
No consensus growth rate forecast is available for Itron.
Relative to the Itron Peer Group, Itron’s historical growth measures are erratic. Equity growth (6.2%) has been at the upper quartile. Total asset growth (2.8%) has been substantially above median. E.P.S. growth (16.8%) has been at median. Revenue growth (-1.5%) has been substantially below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Itron’s stock price performance has been variable and below market. Between May, 2013 and March, 2024, Itron’s stock price rose +113%; relative to the market, this was a -34% 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 66.2% 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 February, 2024 of 66.2% is above median relative to Itron Inc Peer Group.
Current 5-year total return performance of 11.8% is above median relative to the S&P 500 Composite.
Through February, 2024, with above median current 5-year total return of 11.8% relative to S&P 500 Composite, Itron’s total return performance is above median relative to Itron Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ITRI’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is above median. Ratio of enterprise value/assets is slightly above median. Price/equity ratio is at median. The lowest factor, the ratio of enterprise value/revenue, is at the lower quartile.
Relative to Itron Peer Group, ITRI’s overall valuation is normal. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at median. Ratio of enterprise value/revenue is at median. Price/earnings ratio is at median. Ratio of enterprise value/assets is below median. The lowest factor, the price/equity ratio, is at the lower quartile.
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 2.11X to 1.21X. If ITRI’s ratio of enterprise value/revenue were to decline to 1.21X, its stock price would be lower by $-43 to $47.
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 2.11X to 3.29X. If ITRI’s ratio of enterprise value/revenue were to rise to 3.29X, its stock price would increase by $56 from the current level of $89.
VALUE TARGETS
ITRI’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Itron’s current Price Target of $77 represents a -14% change from the current price of $89.43.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 28, the high Power Rating of 94 results in an Value Trend Rating of C.
Itron’s current Price Target is $77 (+55% from the 2023 Target of $49 but -14% from the 03/22/24 price of $89.43). This dramatic rise in the Target is the result of a +0% increase in the equity base and a +55% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a very large positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 15.8% — above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly above the 2022 low of 4%.
PTR’s growth forecast is 6.0% — above our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2018 and 2023. The current forecast is steady at the 2018 low of 4%.
PTR’s cost of equity forecast is 8.8% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is well above the 2022 low of 2.8%.
At Itron’s current price of $89.43, investors are placing a positive value of $9 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 6.5% versus a cost of equity of 3.9%.
PTR’s 2025 Price Target of $77 is based on these forecasts and reflects an estimated value of existing assets of $61 and a value of future investments of $16.
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