Urbanization And Water Scarcity Will Fuel Digital Metering

Key Takeaways

• Accelerating digital adoption, regulatory demand, and water scarcity are expanding Badger Meter's market and enabling premium pricing, driving sustained margin and recurring revenue growth.
  
• Strategic investments in AI, software, and lifecycle platforms position Badger Meter for long-term market leadership and earnings resilience through differentiated, higher-margin offerings.
  
• Rising input costs, intensified competition, and uneven demand create margin pressure, while higher operating expenses and regulatory or budgetary shifts threaten revenue and earnings stability.

Catalysts

Manufactures and markets flow measurement, quality, control, and communication solutions worldwide.

• Analyst consensus focuses on SmartCover's contribution to revenue and cost synergies, but current adoption stands at less than 0.5% in sewer monitoring; this is a multi-decade greenfield opportunity that could unlock outsized, compounding recurring revenue streams as digital adoption accelerates globally, creating a step function in long-term earnings leverage.
  
• Analysts see continued gains from AMI and digital software adoption but may underestimate the acceleration from regulatory-driven demand and urbanization, which could drive a new wave of global infrastructure spending, dramatically expanding Badger Meter's addressable market and driving revenue growth well above current high single-digit projections.
  
• The BlueEdge platform and expansion "beyond the meter" position Badger Meter to command a much larger share of customer spend through lifecycle partnerships, increasing software attachment rates and driving sustained margin expansion and earnings resilience.
  
• Intensifying water scarcity, mounting regulatory pressure, and mandates for real-time monitoring are dramatically shortening replacement cycles and pushing utilities to prioritize premium solutions, allowing Badger Meter to command pricing power and consistently mix up to higher-margin products, resulting in structurally higher gross and net margins.
  
• Ongoing investment in AI and machine learning capabilities, as evidenced by new products like Cobalt, positions the company for future market leadership in utility data analytics, enabling differentiated offerings that could significantly accelerate both share gains and the premiumization of Badger Meter's revenue base.

Badger Meter Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Badger Meter compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Badger Meter's revenue will grow by 9.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.5% today to 17.2% in 3 years time.
• The bullish analysts expect earnings to reach $197.1 million (and earnings per share of $6.66) by about July 2028, up from $135.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 52.0x on those 2028 earnings, up from 44.4x today. This future PE is greater than the current PE for the US Electronic industry at 23.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Badger Meter Future Earnings Per Share Growth

Risks

• The company is experiencing rising supply chain and tariff risks, such as fluctuations in copper prices and ongoing trade environment uncertainties, which threaten to increase input costs and could ultimately reduce gross margins if price increases are unable to keep pace with costs.
  
• Moderation of core product sales growth and project timing uncertainty, especially after recent AMI project completions, could signal approaching technology saturation or lumpy municipal demand, potentially impacting future revenue consistency.
  
• The industry's gradual commoditization of smart water meters, combined with larger competitors with broader portfolios and pricing power, poses a risk of compressed gross margins and challenged market share for Badger Meter over time.
  
• Persistent elevation in SG&A expenses, partly from acquisitions like SmartCover which currently operates above line average costs, may erode net earnings if revenue growth does not sufficiently outpace operating cost increases.
  
• If regulatory fragmentation across regions or future reductions in public sector infrastructure budgets takes hold, Badger Meter could face delayed project awards and elongated sales cycles that would adversely affect both top-line revenue and earnings visibility.

Valuation

• The assumed bullish price target for Badger Meter is $284.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Badger Meter's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $284.0, and the most bearish reporting a price target of just $195.32.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $197.1 million, and it would be trading on a PE ratio of 52.0x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $204.8, the bullish analyst price target of $284.0 is 27.9% 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.