Backlog Of $47B Will Expand Grid Edge Opportunities

Key Takeaways

• Strong execution and demand for intelligence solutions drive margin expansion and suggest potential for future revenue growth.
  
• Significant project backlog and improved supply chain resilience could sustain earnings and margin improvements.
  
• Changes in tariffs, supply chain disruptions, and macroeconomic downturns could negatively impact Itron's margins, revenue, and growth consistency.

Catalysts

A technology, solutions, and service company, provides end-to-end solutions that help manage energy, water, and smart city operations worldwide.

• Strong execution and favorable product mix are driving margin expansion and earnings growth, suggesting potential for future revenue growth and improved net margins.
  
• High customer demand for Itron's grid edge intelligence platform and solutions indicates potential for revenue growth through increased market penetration and adoption of new technologies.
  
• A significant backlog of $4.7 billion, including major projects with utilities like FirstEnergy and Public Service Company of New Mexico, provides a robust pipeline for future revenue growth.
  
• Continuous deployment of distributed intelligence solutions enhances efficiency and reliability, potentially boosting future revenue and net margins by increasing the value and effectiveness of Itron's offerings.
  
• Efforts to improve supply chain resilience and grow recurring revenue, alongside the regional manufacturing strategy minimizing tariff impact, could lead to sustained improvement in earnings and net margins.

Itron Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Itron's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.3% today to 10.1% in 3 years time.
• Analysts expect earnings to reach $285.2 million (and earnings per share of $6.35) by about May 2028, up from $252.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, up from 19.2x today. This future PE is greater than the current PE for the US Electronic industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Itron Future Earnings Per Share Growth

Risks

• Changes in tariff regulations and trade policies, particularly if tariffs are increased or new ones are imposed, could negatively impact Itron's gross margins and net EBITDA as it relies on global components.
  
• Supply chain disruptions or changes, including shifts in sourcing due to tariffs, could impact Itron's ability to maintain or improve its revenue and operational efficiencies.
  
• The macroeconomic environment and potential downturns could decrease demand for Itron's solutions, affecting revenue and earnings growth.
  
• The variability in revenue from the Devices and Network Solutions segments, influenced by product mix and prior year catch-ups, could lead to inconsistent gross margins and operating income.
  
• Execution risks tied to software growth, such as the ability to consistently increase recurring revenues in Outcomes, could affect overall revenue and net income projections.

Valuation

• The analysts have a consensus price target of $129.0 for Itron based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $139.0, and the most bearish reporting a price target of just $110.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $285.2 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $106.68, the analyst price target of $129.0 is 17.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.