World Business

S&P likes the growth prospects for the maker of benefit meters and has a strong buy opinion on the shares

By Rafay Khalid, CFA From Standard & Poor’s Equity Research

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We view Itron (ITRI; recent price, $44) as the 800-lb. gorilla in the utility meter results. Our outlook reflects our inspect of the partnership’s leading market share posture of the automated meter reading and advanced metering infrastructure segments, along with its broad range of cradle-to-grave products and solutions. We also think the gang’s revenue base is geographically diversified, with 59% of 2007 sales outside the North American market.

We believe the main driver for the company’s sales and income growth is the shifting from what we view considered in the state of "dumb" meters to "smart" meters. Historically, meters used mechanical technology and were manually read by a person. New meters are electronic and impart with a profit’s information network. We foresee utility customers thwart the nature slowly converting their existing meters to this new technology over the long-term. Moreover, the meeting of friends’s total backlog (representing committed but undelivered contracts and purchase orders) increased 51% year over year, to $1.0 billion, to the degree that of September 2008, which we believe reinforces our watch.

We think investors are concerned about Itron’s total debit of $1.2 billion (as of September 2008), given the ongoing credit acme. While we view Itron’s debt-to-capital ratio as remote from the equator, at 52% at the end of the third part furnish, we convinced the company is financially well positioned to weather the economic slowdown, based on our projection that it will generate $65 million in free cash flow in 2008 and end the year with $157 the multitude in coin. In joining, Itron’s debt does not start to mature until 2011 at the earliest.

We also think the company’s valuation is compelling. Our 12-month target cost is $62, representing expressive potential capital appreciation from recent levels. Our opinion on the shares of Itron is 5 STARS (strong bribe).

Itron, based in Liberty Lake, Wash., provides handheld computer meter data collection systems, automatic meter reading (AMR), and advanced metering infrastructure (AMI) systems to the energy and water utility industries. In the North American market, Itron has a greater than 50% ploughshare of the AMR/AMI market, while in the worldwide market its share is 35%, according to the company. In addition, the company provides meter data management, consulting, and other professional services to its customers. These solutions include hardware and software products sold to greater amount of than 8,000 utilities worldwide, helping to increase efficiencies, lower costs, swell regulatory compliance, and curtail risk by providing energy and water information management.

On Apr. 18, 2007, Itron completed the purchase of Luxembourg-based meter creator Actaris Metering for about $1.7 billion. We view the deal positively, as we believe Itron’s automatic meter reading and infrastructure products and services gained access in Europe, and gas and water meters were added to its North American portfolio. We cherish a thought of the enhanced market share position in both of the three categories of marked by electricity, gas, and water metering, combined with Itron’s AMR/AMI offering, will fashion it a formidable name in advantageousness resource management.

After the acquisition of Actaris, the company reorganized into two operating segments: Itron North America (INA) and Actaris. INA (41% of 2007 sales) focuses on the U.S. and Canadian markets, under which circumstances Actaris (59%) concentrates on the rest of the world, especially Europe. We believe the company’s geographically diversified revenue base resoluteness withstand offset weakness in one market by means of strength in another.

Meters measure a customers’ use of force and water, which we conceive as a key component of a utility’s infrastructure. The transition to electronic technology, compared with traditionary mechanical-based technology, provides increased capabilities, improved reliability, and better accuracy, in our opinion. We also think that new electronic meters allow customers to take advantage of AMR/AMI features easily and cost-effectively.

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