Intrinsic value of Badger Meter - BMI

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$39.10

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$39.10

 
Intrinsic value

$14.97

 
Up/down potential

-62%

 
Rating

str. sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BMI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.23
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  394
  402
  411
  422
  434
  447
  461
  477
  494
  512
  532
  553
  575
  599
  625
  651
  680
  710
  742
  776
  812
  849
  889
  931
  975
  1,021
  1,070
  1,121
  1,176
  1,233
  1,292
Variable operating expenses, $m
 
  201
  205
  211
  216
  223
  230
  237
  246
  255
  264
  270
  280
  292
  304
  318
  332
  346
  362
  378
  396
  414
  433
  454
  475
  498
  522
  547
  573
  601
  630
Fixed operating expenses, $m
 
  154
  158
  162
  166
  170
  174
  178
  183
  187
  192
  197
  202
  207
  212
  217
  223
  228
  234
  240
  246
  252
  258
  265
  271
  278
  285
  292
  299
  307
  315
Total operating expenses, $m
  343
  355
  363
  373
  382
  393
  404
  415
  429
  442
  456
  467
  482
  499
  516
  535
  555
  574
  596
  618
  642
  666
  691
  719
  746
  776
  807
  839
  872
  908
  945
Operating income, $m
  51
  47
  48
  50
  52
  54
  57
  61
  65
  70
  76
  86
  93
  100
  108
  117
  126
  136
  146
  158
  170
  183
  197
  212
  228
  245
  263
  283
  303
  325
  348
EBITDA, $m
  74
  70
  71
  73
  76
  79
  83
  87
  92
  98
  104
  111
  118
  126
  135
  145
  156
  167
  179
  192
  206
  220
  236
  253
  271
  290
  310
  332
  354
  379
  404
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
Earnings before tax, $m
  50
  46
  47
  48
  50
  53
  56
  60
  64
  68
  74
  84
  91
  98
  105
  114
  123
  132
  143
  154
  166
  179
  193
  207
  223
  240
  257
  276
  296
  318
  340
Tax expense, $m
  18
  12
  13
  13
  14
  14
  15
  16
  17
  18
  20
  23
  24
  26
  28
  31
  33
  36
  39
  42
  45
  48
  52
  56
  60
  65
  69
  75
  80
  86
  92
Net income, $m
  32
  34
  34
  35
  37
  39
  41
  43
  46
  50
  54
  62
  66
  71
  77
  83
  90
  97
  104
  112
  121
  131
  141
  151
  163
  175
  188
  202
  216
  232
  248

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  350
  350
  358
  367
  377
  389
  401
  415
  430
  446
  463
  481
  501
  521
  544
  567
  592
  618
  646
  675
  706
  739
  774
  810
  848
  889
  931
  976
  1,023
  1,073
  1,125
Adjusted assets (=assets-cash), $m
  343
  350
  358
  367
  377
  389
  401
  415
  430
  446
  463
  481
  501
  521
  544
  567
  592
  618
  646
  675
  706
  739
  774
  810
  848
  889
  931
  976
  1,023
  1,073
  1,125
Revenue / Adjusted assets
  1.149
  1.149
  1.148
  1.150
  1.151
  1.149
  1.150
  1.149
  1.149
  1.148
  1.149
  1.150
  1.148
  1.150
  1.149
  1.148
  1.149
  1.149
  1.149
  1.150
  1.150
  1.149
  1.149
  1.149
  1.150
  1.148
  1.149
  1.149
  1.150
  1.149
  1.148
Average production assets, $m
  145
  148
  151
  155
  160
  164
  170
  175
  182
  188
  196
  203
  212
  220
  230
  240
  250
  261
  273
  286
  299
  313
  327
  343
  359
  376
  394
  413
  433
  454
  476
Working capital, $m
  75
  108
  111
  113
  117
  120
  124
  128
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  218
  228
  239
  250
  262
  275
  288
  302
  316
  332
  348
Total debt, $m
  38
  33
  35
  37
  40
  43
  46
  49
  53
  57
  62
  66
  71
  76
  82
  88
  94
  101
  108
  116
  123
  132
  141
  150
  159
  170
  181
  192
  204
  216
  230
Total liabilities, $m
  93
  89
  91
  93
  96
  99
  102
  105
  109
  113
  118
  122
  127
  132
  138
  144
  150
  157
  164
  172
  179
  188
  197
  206
  215
  226
  237
  248
  260
  272
  286
Total equity, $m
  256
  261
  267
  274
  281
  290
  299
  310
  321
  333
  345
  359
  373
  389
  405
  423
  442
  461
  482
  504
  527
  551
  577
  604
  633
  663
  695
  728
  763
  800
  839
Total liabilities and equity, $m
  349
  350
  358
  367
  377
  389
  401
  415
  430
  446
  463
  481
  500
  521
  543
  567
  592
  618
  646
  676
  706
  739
  774
  810
  848
  889
  932
  976
  1,023
  1,072
  1,125
Debt-to-equity ratio
  0.148
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
Adjusted equity ratio
  0.726
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  34
  34
  35
  37
  39
  41
  43
  46
  50
  54
  62
  66
  71
  77
  83
  90
  97
  104
  112
  121
  131
  141
  151
  163
  175
  188
  202
  216
  232
  248
Depreciation, amort., depletion, $m
  23
  23
  23
  23
  24
  24
  25
  26
  27
  27
  28
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
Funds from operations, $m
  56
  56
  57
  59
  61
  63
  66
  69
  73
  77
  82
  86
  91
  98
  104
  112
  119
  128
  137
  146
  157
  168
  180
  192
  205
  220
  235
  251
  268
  286
  305
Change in working capital, $m
  0
  2
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
Cash from operations, $m
  56
  51
  55
  56
  57
  60
  62
  65
  68
  72
  77
  80
  85
  91
  97
  104
  112
  120
  128
  137
  147
  158
  169
  181
  194
  207
  222
  237
  253
  270
  289
Maintenance CAPEX, $m
  0
  -17
  -18
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
New CAPEX, $m
  -11
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -12
  -20
  -21
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -29
  -31
  -32
  -34
  -35
  -37
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
Free cash flow, $m
  44
  31
  34
  34
  35
  36
  37
  39
  41
  44
  47
  49
  53
  57
  62
  67
  73
  79
  85
  92
  100
  108
  117
  127
  137
  147
  159
  171
  184
  198
  213
Issuance/(repayment) of debt, $m
  -33
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
Issuance/(repurchase) of shares, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -32
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
Total cash flow (excl. dividends), $m
  11
  33
  36
  36
  37
  39
  40
  43
  45
  48
  51
  54
  58
  62
  68
  73
  79
  85
  92
  100
  108
  117
  126
  136
  146
  158
  170
  182
  196
  211
  226
Retained Cash Flow (-), $m
  -24
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  28
  30
  29
  30
  30
  31
  32
  34
  36
  39
  40
  43
  47
  51
  55
  60
  66
  72
  78
  85
  92
  100
  109
  118
  128
  138
  149
  161
  174
  187
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  27
  27
  26
  24
  23
  23
  22
  21
  21
  20
  19
  18
  18
  17
  16
  15
  14
  13
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Badger Meter, Inc. manufactures and sells flow measurement and control technologies related products. It offers mechanical and electronic water meters, and related technologies and services to municipal water utilities; and meters and valves to measure and control materials flowing through a pipe or pipeline, such as water, air, steam, oil, and other liquids and gases, as well as for use in water/wastewater, heating, ventilating and air conditioning, oil and gas, chemical and petrochemical, test and measurement, automotive aftermarket, and the concrete construction process. The company provides flow measurement technologies to original equipment manufacturers as the primary flow measurement device in a product or system; ORION mobile for mobile meter reading; ORION fixed network for traditional fixed network applications; and ORION cellular for infrastructure-free meter reading. It also serves municipalities, and commercial and industrial customers worldwide. The company sells its products through employees, resellers, and representatives. Badger Meter, Inc. was founded in 1905 and is headquartered in Milwaukee, Wisconsin.

FINANCIAL RATIOS  of  Badger Meter (BMI)

Valuation Ratios
P/E Ratio 35.6
Price to Sales 2.9
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 20.3
Price to Free Cash Flow 25.3
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45%
Cap. Spend. - 3 Yr. Gr. Rate -4.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 14.8%
Interest Coverage 51
Management Effectiveness
Return On Assets 9.3%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 10.7%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 13.1%
Return On Equity - 3 Yr. Avg. 13.1%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 38.3%
Gross Margin - 3 Yr. Avg. 36.7%
EBITDA Margin 18.8%
EBITDA Margin - 3 Yr. Avg. 17.5%
Operating Margin 12.9%
Oper. Margin - 3 Yr. Avg. 12.3%
Pre-Tax Margin 12.7%
Pre-Tax Margin - 3 Yr. Avg. 12%
Net Profit Margin 8.1%
Net Profit Margin - 3 Yr. Avg. 7.7%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 35.3%
Payout Ratio 37.5%

BMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BMI stock intrinsic value calculation we used $394 million for the last fiscal year's total revenue generated by Badger Meter. The default revenue input number comes from 2016 income statement of Badger Meter. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BMI stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BMI is calculated based on our internal credit rating of Badger Meter, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Badger Meter.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BMI stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $150 million in the base year in the intrinsic value calculation for BMI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Badger Meter.

Corporate tax rate of 27% is the nominal tax rate for Badger Meter. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BMI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BMI are equal to 36.8%.

Life of production assets of 8.4 years is the average useful life of capital assets used in Badger Meter operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BMI is equal to 26.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $256 million for Badger Meter - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 29.412 million for Badger Meter is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Badger Meter at the current share price and the inputted number of shares is $1.2 billion.


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COMPANY NEWS

▶ Badger Meter Declares Regular Quarterly Dividend   [Apr-28-17 02:39PM  Business Wire]
▶ ETFs with exposure to Badger Meter, Inc. : April 27, 2017   [Apr-27-17 03:47PM  Capital Cube]
▶ Badger Meter posts 1Q profit   [Apr-19-17 04:28PM  Associated Press]
▶ Badger Meter Announces First Quarter Conference Call   [Mar-13-17 04:25PM  Business Wire]
▶ Badger Meter adds two Wisconsin manufacturing CEOs to board   [Feb-10-17 03:40PM  at bizjournals.com]
▶ Badger Meter adds two Wisconsin manufacturing CEOs to board   [03:40PM  American City Business Journals]
▶ Badger Meter posts 4Q profit   [04:28PM  Associated Press]
▶ Badger Meter Announces Fourth Quarter Conference Call   [Jan-03-17 03:31PM  Business Wire]
▶ Badger Meter Reports Third Quarter Results   [04:11PM  Business Wire]
▶ Badger Meter Announces Third Quarter Conference Call   [Sep-14-16 03:28PM  Business Wire]
▶ [$$] Badger Meter Plans Stock Split, Dividend Increase   [Aug-15-16 12:08AM  at The Wall Street Journal]
▶ [$$] Badger Meter Plans Stock Split, Dividend Increase   [Aug-12-16 05:48PM  at The Wall Street Journal]
▶ Badger Meter will not be sold   [05:25PM  at bizjournals.com]
▶ Badger Meter Opens New Customer Experience Center   [Aug-04-16 09:30AM  Business Wire]
▶ Badger Meter posts 2Q profit   [Jul-20-16 04:58PM  AP]
▶ Badger Meter Announces Second Quarter Conference Call   [Jun-16-16 12:48PM  Business Wire]
▶ Badger Meter Responds to Media Reports   [04:23PM  Business Wire]
▶ Badger Meter Declares Regular Quarterly Dividend   [Apr-29-16 02:24PM  Business Wire]
▶ New Strong Buy Stocks for April 22nd   [Apr-22-16 09:41AM  Zacks]
Stock chart of BMI Financial statements of BMI Annual reports of BMI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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