Intrinsic value of Badger Meter - BMI

Previous Close

$46.95

  Intrinsic Value

$21.15

stock screener

  Rating & Target

str. sell

-55%

Previous close

$46.95

 
Intrinsic value

$21.15

 
Up/down potential

-55%

 
Rating

str. sell

*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 1.4

 

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
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  394
  411
  428
  447
  466
  487
  509
  533
  557
  583
  611
  639
  670
  702
  735
  771
  808
  847
  889
  932
  978
  1,026
  1,076
  1,129
  1,184
  1,243
  1,304
  1,369
  1,437
  1,508
  1,583
Variable operating expenses, $m
 
  205
  214
  223
  232
  243
  253
  265
  277
  289
  303
  312
  327
  342
  359
  376
  394
  413
  433
  454
  477
  500
  525
  550
  578
  606
  636
  667
  700
  735
  772
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
  359
  372
  385
  398
  413
  427
  443
  460
  476
  495
  509
  529
  549
  571
  593
  617
  641
  667
  694
  723
  752
  783
  815
  849
  884
  921
  959
  999
  1,042
  1,087
Operating income, $m
  51
  52
  57
  62
  69
  75
  82
  90
  98
  107
  116
  131
  142
  153
  165
  178
  191
  206
  221
  238
  255
  274
  293
  314
  336
  359
  383
  409
  437
  466
  496
EBITDA, $m
  74
  75
  81
  87
  94
  101
  109
  118
  127
  137
  148
  159
  171
  184
  197
  212
  227
  243
  260
  279
  298
  318
  340
  363
  388
  413
  441
  469
  500
  532
  566
Interest expense (income), $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  50
  51
  56
  61
  67
  73
  80
  88
  96
  104
  113
  128
  139
  150
  161
  174
  187
  202
  217
  233
  250
  268
  287
  307
  329
  352
  376
  401
  428
  457
  487
Tax expense, $m
  18
  14
  15
  17
  18
  20
  22
  24
  26
  28
  31
  35
  37
  40
  44
  47
  51
  54
  59
  63
  67
  72
  78
  83
  89
  95
  101
  108
  116
  123
  131
Net income, $m
  32
  37
  41
  45
  49
  54
  59
  64
  70
  76
  83
  94
  101
  109
  118
  127
  137
  147
  158
  170
  182
  196
  210
  224
  240
  257
  274
  293
  313
  333
  355

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
  357
  373
  389
  406
  424
  443
  464
  485
  508
  531
  557
  583
  611
  640
  671
  703
  737
  773
  811
  851
  893
  936
  982
  1,031
  1,082
  1,135
  1,191
  1,250
  1,312
  1,378
Adjusted assets (=assets-cash), $m
  343
  357
  373
  389
  406
  424
  443
  464
  485
  508
  531
  557
  583
  611
  640
  671
  703
  737
  773
  811
  851
  893
  936
  982
  1,031
  1,082
  1,135
  1,191
  1,250
  1,312
  1,378
Revenue / Adjusted assets
  1.149
  1.151
  1.147
  1.149
  1.148
  1.149
  1.149
  1.149
  1.148
  1.148
  1.151
  1.147
  1.149
  1.149
  1.148
  1.149
  1.149
  1.149
  1.150
  1.149
  1.149
  1.149
  1.150
  1.150
  1.148
  1.149
  1.149
  1.149
  1.150
  1.149
  1.149
Average production assets, $m
  145
  151
  158
  164
  172
  179
  187
  196
  205
  215
  225
  235
  246
  258
  271
  284
  297
  312
  327
  343
  360
  377
  396
  415
  436
  457
  480
  504
  529
  555
  582
Working capital, $m
  75
  110
  115
  120
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  207
  217
  228
  239
  251
  263
  276
  289
  304
  319
  334
  351
  368
  386
  406
  426
Total debt, $m
  38
  35
  39
  43
  47
  52
  57
  62
  67
  73
  79
  85
  92
  99
  107
  114
  123
  131
  140
  150
  160
  171
  182
  194
  206
  219
  232
  247
  262
  277
  294
Total liabilities, $m
  93
  91
  95
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  163
  170
  179
  187
  196
  206
  216
  227
  238
  250
  262
  275
  288
  303
  318
  333
  350
Total equity, $m
  256
  267
  278
  290
  303
  316
  331
  346
  362
  379
  396
  415
  435
  456
  478
  501
  525
  550
  577
  605
  635
  666
  699
  733
  769
  807
  847
  889
  933
  979
  1,028
Total liabilities and equity, $m
  349
  358
  373
  389
  406
  424
  444
  464
  485
  508
  531
  556
  583
  611
  641
  671
  704
  737
  773
  811
  851
  893
  937
  983
  1,031
  1,082
  1,135
  1,192
  1,251
  1,312
  1,378
Debt-to-equity ratio
  0.148
  0.130
  0.140
  0.150
  0.160
  0.160
  0.170
  0.180
  0.190
  0.190
  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
  0.280
  0.280
  0.280
  0.290
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
  37
  41
  45
  49
  54
  59
  64
  70
  76
  83
  94
  101
  109
  118
  127
  137
  147
  158
  170
  182
  196
  210
  224
  240
  257
  274
  293
  313
  333
  355
Depreciation, amort., depletion, $m
  23
  23
  24
  24
  25
  26
  27
  28
  29
  30
  32
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
Funds from operations, $m
  56
  60
  64
  69
  74
  80
  86
  92
  99
  107
  114
  122
  130
  140
  150
  161
  172
  184
  197
  211
  225
  241
  257
  274
  292
  311
  331
  353
  375
  399
  425
Change in working capital, $m
  0
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Cash from operations, $m
  56
  55
  60
  64
  69
  74
  80
  86
  93
  100
  107
  114
  122
  131
  141
  151
  162
  174
  186
  199
  213
  228
  243
  260
  277
  295
  315
  335
  357
  380
  405
Maintenance CAPEX, $m
  0
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
New CAPEX, $m
  -11
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
Cash from investing activities, $m
  -12
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -49
  -52
  -55
  -58
  -61
  -64
  -66
  -69
  -74
  -77
  -81
  -85
  -89
  -94
Free cash flow, $m
  44
  32
  35
  38
  42
  46
  50
  55
  60
  66
  71
  76
  83
  90
  98
  106
  115
  124
  134
  144
  155
  167
  180
  193
  207
  222
  238
  255
  272
  291
  311
Issuance/(repayment) of debt, $m
  -33
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
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
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Total cash flow (excl. dividends), $m
  11
  36
  39
  43
  47
  51
  55
  60
  66
  71
  78
  83
  90
  97
  105
  114
  123
  133
  143
  154
  165
  178
  191
  205
  219
  235
  251
  269
  287
  307
  327
Retained Cash Flow (-), $m
  -24
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
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
 
  25
  28
  31
  34
  37
  41
  45
  50
  55
  60
  64
  70
  77
  83
  91
  99
  107
  116
  126
  136
  147
  158
  170
  183
  197
  212
  227
  243
  261
  279
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
 
  24
  25
  27
  28
  29
  30
  31
  31
  31
  31
  30
  30
  29
  28
  27
  25
  23
  21
  19
  17
  15
  13
  11
  9
  8
  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
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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 42.7
Price to Sales 3.5
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 24.4
Price to Free Cash Flow 30.4
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 4.2% 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 29.224 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 $1.4 billion.

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COMPANY NEWS

▶ 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]
▶ Badger Meter Announces Third Quarter Conference Call   [Sep-05-17 03:12PM  Business Wire]
▶ New Strong Buy Stocks for August 15th   [Aug-15-17 10:43AM  Zacks]
▶ Badger Meter Increases Dividend   [02:46PM  Business Wire]
▶ New Strong Buy Stocks for August 7th   [Aug-07-17 09:34AM  Zacks]
▶ Top Ranked Momentum Stocks to Buy for July 31st   [Jul-31-17 10:20AM  Zacks]
▶ Techs Pace Advancing Futures; Final FANG Prepares To Report   [08:03AM  Investor's Business Daily]
▶ Badger Meter posts 2Q profit   [Jul-20-17 09:48PM  Associated Press]
▶ Badger Meter Announces Second Quarter Conference Call   [Jun-12-17 12:36PM  Business Wire]
▶ 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]
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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