Intrinsic value of Badger Meter - BMI

Previous Close

$52.60

  Intrinsic Value

$22.24

stock screener

  Rating & Target

str. sell

-58%

Previous close

$52.60

 
Intrinsic value

$22.24

 
Up/down potential

-58%

 
Rating

str. sell

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  394
  411
  421
  433
  445
  459
  475
  491
  509
  529
  549
  572
  595
  620
  647
  675
  705
  736
  770
  805
  842
  882
  923
  967
  1,012
  1,061
  1,112
  1,165
  1,222
  1,281
  1,343
Variable operating expenses, $m
 
  181
  185
  190
  195
  201
  208
  214
  222
  230
  238
  235
  244
  255
  265
  277
  289
  302
  316
  330
  346
  362
  379
  397
  416
  435
  456
  478
  501
  526
  551
Fixed operating expenses, $m
 
  177
  181
  185
  189
  193
  197
  201
  206
  210
  215
  220
  225
  230
  235
  240
  245
  250
  256
  262
  267
  273
  279
  285
  292
  298
  305
  311
  318
  325
  332
Total operating expenses, $m
  343
  358
  366
  375
  384
  394
  405
  415
  428
  440
  453
  455
  469
  485
  500
  517
  534
  552
  572
  592
  613
  635
  658
  682
  708
  733
  761
  789
  819
  851
  883
Operating income, $m
  51
  53
  55
  58
  61
  65
  70
  76
  82
  89
  96
  117
  126
  136
  147
  158
  171
  184
  198
  213
  229
  247
  265
  284
  305
  327
  351
  376
  402
  430
  460
EBITDA, $m
  74
  86
  89
  92
  97
  102
  107
  113
  121
  128
  137
  146
  157
  168
  180
  193
  207
  221
  237
  254
  272
  292
  312
  334
  357
  382
  408
  435
  465
  496
  528
Interest expense (income), $m
  1
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
Earnings before tax, $m
  50
  50
  52
  55
  58
  62
  67
  72
  78
  85
  92
  113
  121
  131
  141
  152
  164
  177
  190
  205
  221
  237
  255
  274
  294
  316
  338
  362
  388
  415
  444
Tax expense, $m
  18
  14
  14
  15
  16
  17
  18
  19
  21
  23
  25
  30
  33
  35
  38
  41
  44
  48
  51
  55
  60
  64
  69
  74
  79
  85
  91
  98
  105
  112
  120
Net income, $m
  32
  37
  38
  40
  43
  45
  49
  53
  57
  62
  67
  82
  89
  95
  103
  111
  120
  129
  139
  150
  161
  173
  186
  200
  215
  230
  247
  265
  283
  303
  324

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
  400
  410
  421
  434
  447
  462
  479
  496
  515
  535
  557
  580
  604
  630
  657
  686
  717
  750
  784
  820
  858
  899
  941
  986
  1,033
  1,083
  1,135
  1,190
  1,247
  1,308
Adjusted assets (=assets-cash), $m
  343
  400
  410
  421
  434
  447
  462
  479
  496
  515
  535
  557
  580
  604
  630
  657
  686
  717
  750
  784
  820
  858
  899
  941
  986
  1,033
  1,083
  1,135
  1,190
  1,247
  1,308
Revenue / Adjusted assets
  1.149
  1.028
  1.027
  1.029
  1.025
  1.027
  1.028
  1.025
  1.026
  1.027
  1.026
  1.027
  1.026
  1.026
  1.027
  1.027
  1.028
  1.026
  1.027
  1.027
  1.027
  1.028
  1.027
  1.028
  1.026
  1.027
  1.027
  1.026
  1.027
  1.027
  1.027
Average production assets, $m
  145
  210
  216
  221
  228
  235
  243
  252
  261
  271
  281
  293
  305
  318
  331
  346
  361
  377
  394
  412
  431
  451
  473
  495
  518
  543
  569
  597
  625
  656
  688
Working capital, $m
  75
  58
  59
  61
  63
  65
  67
  69
  72
  75
  77
  81
  84
  87
  91
  95
  99
  104
  109
  114
  119
  124
  130
  136
  143
  150
  157
  164
  172
  181
  189
Total debt, $m
  38
  47
  50
  53
  56
  60
  65
  70
  75
  80
  86
  92
  99
  106
  114
  122
  130
  139
  149
  159
  169
  180
  192
  205
  218
  231
  246
  261
  277
  294
  312
Total liabilities, $m
  93
  117
  120
  123
  127
  131
  135
  140
  145
  150
  156
  163
  169
  176
  184
  192
  200
  209
  219
  229
  239
  251
  262
  275
  288
  302
  316
  331
  347
  364
  382
Total equity, $m
  256
  283
  290
  298
  307
  317
  327
  339
  351
  365
  379
  394
  410
  428
  446
  465
  486
  508
  531
  555
  581
  608
  636
  666
  698
  731
  766
  803
  842
  883
  926
Total liabilities and equity, $m
  349
  400
  410
  421
  434
  448
  462
  479
  496
  515
  535
  557
  579
  604
  630
  657
  686
  717
  750
  784
  820
  859
  898
  941
  986
  1,033
  1,082
  1,134
  1,189
  1,247
  1,308
Debt-to-equity ratio
  0.148
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.290
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.320
  0.330
  0.330
  0.330
  0.340
Adjusted equity ratio
  0.726
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  37
  38
  40
  43
  45
  49
  53
  57
  62
  67
  82
  89
  95
  103
  111
  120
  129
  139
  150
  161
  173
  186
  200
  215
  230
  247
  265
  283
  303
  324
Depreciation, amort., depletion, $m
  23
  34
  34
  35
  36
  36
  37
  38
  39
  40
  41
  29
  30
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
Funds from operations, $m
  56
  70
  72
  75
  78
  82
  86
  90
  96
  102
  108
  111
  119
  127
  136
  146
  156
  167
  178
  191
  204
  218
  234
  250
  267
  285
  304
  324
  346
  369
  393
Change in working capital, $m
  0
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  56
  69
  71
  73
  76
  80
  84
  88
  93
  99
  105
  108
  116
  124
  132
  142
  152
  162
  174
  186
  199
  213
  228
  243
  260
  278
  297
  317
  338
  360
  384
Maintenance CAPEX, $m
  0
  -21
  -21
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
New CAPEX, $m
  -11
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
Cash from investing activities, $m
  -12
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -80
  -84
  -89
  -93
  -98
Free cash flow, $m
  44
  44
  45
  46
  48
  50
  52
  55
  59
  63
  67
  69
  74
  80
  87
  94
  102
  110
  119
  128
  139
  150
  161
  174
  187
  201
  216
  232
  249
  267
  286
Issuance/(repayment) of debt, $m
  -33
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
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
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Total cash flow (excl. dividends), $m
  11
  46
  48
  49
  51
  54
  57
  60
  64
  68
  73
  75
  81
  88
  94
  102
  110
  119
  128
  139
  149
  161
  173
  186
  200
  215
  231
  248
  265
  284
  304
Retained Cash Flow (-), $m
  -24
  -6
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
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
 
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
Cash available for distribution, $m
 
  40
  41
  41
  42
  44
  46
  49
  52
  55
  59
  60
  65
  70
  76
  83
  90
  97
  105
  114
  124
  134
  145
  156
  169
  182
  196
  211
  226
  243
  261
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
 
  38
  37
  36
  35
  34
  33
  33
  32
  32
  31
  28
  28
  27
  26
  24
  23
  21
  19
  18
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Badger Meter, Inc. is a manufacturer and marketer of products incorporating flow measurement, control and communication solutions, serving water utilities, municipalities, and commercial and industrial customers around the world. The Company's products measure water, oil, chemicals and other fluids, provide and communicate timely measurement data. Its product lines include two categories: sales of water meters and related technologies to municipal water utilities (municipal water), and sales of meters to various industries for water and other fluids (flow instrumentation). The municipal water offering includes mechanical and ultrasonic (electronic) water meters and related technologies and services used by water utilities as the basis for generating water and wastewater. The flow instrumentation category includes the sale of meters and valves around the world to measure and control materials flowing through a pipe or pipeline, including air, steam, oil, and other liquids and gases.

FINANCIAL RATIOS  of  Badger Meter (BMI)

Valuation Ratios
P/E Ratio 47.9
Price to Sales 3.9
Price to Book 6
Price to Tangible Book
Price to Cash Flow 27.4
Price to Free Cash Flow 34
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 $402 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 2.2% 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 44.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $173 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 5.4% 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 0.4%.

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 51.2%.

Life of production assets of 10 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 14.1%. 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 - $277 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 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 $1.5 billion.

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COMPANY NEWS

▶ Badger Meter Increases Dividend   [Aug-10-18 04:15PM  Business Wire]
▶ Badger Meter Appoints Bauer Investor Relations Executive   [Jul-31-18 04:30PM  Business Wire]
▶ Badger Meter: 2Q Earnings Snapshot   [Jul-18-18 04:40PM  Associated Press]
▶ A Preview Of Badger Meter's Earnings   [07:57AM  Benzinga]
▶ Badger Meter Announces Second Quarter Conference Call   [Jun-12-18 03:00PM  Business Wire]
▶ Badger Meter Joins AT&T Smart City Alliance   [11:00AM  Business Wire]
▶ Badger Meter names new president; Meeusen remains chairman and CEO   [Apr-27-18 05:39PM  American City Business Journals]
▶ Badger Meter, Inc. to Host Earnings Call   [Apr-18-18 09:00AM  ACCESSWIRE]
▶ Badger Meter: 1Q Earnings Snapshot   [Apr-17-18 04:19PM  Associated Press]
▶ Badger Meter Announces First Quarter Conference Call   [Mar-13-18 11:34AM  Business Wire]
▶ Badger Meter Declares Regular Quarterly Dividend   [Feb-09-18 03:33PM  Business Wire]
▶ Is Badger Meter Incs (NYSE:BMI) ROE Of 12.70% Sustainable?   [Feb-06-18 11:59AM  Simply Wall St.]
▶ Badger Meter tops 4Q profit forecasts   [Feb-05-18 06:37PM  Associated Press]
▶ Badger Meter Q4 Earnings Preview   [10:31AM  Benzinga]
▶ Badger Meter Announces Fourth Quarter Conference Call   [Jan-03-18 03:16PM  Business Wire]
▶ Badger Meter moving 35 jobs to Racine from Arizona   [Nov-29-17 06:30PM  American City Business Journals]
▶ Badger Meter Declares Regular Quarterly Dividend   [Nov-10-17 11:52AM  Business Wire]
▶ Tiny, Mighty Dividend Stocks   [Nov-01-17 06:40PM  Motley Fool]
▶ Company News For Oct 17, 2017   [10:03AM  Zacks]
▶ Badger Meter misses Street 3Q forecasts   [Oct-16-17 04:24PM  Associated Press]
Financial statements 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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