Itron Inc. (ITRI) – Part 3 – Outlook

Itron is currently riding the smart metering wave. The business is directly affected as government regulation on alternative energy shifts. To exemplify, in the US, should a senate bill that boosts big oil more than alternative energy companies be approved, Itron will be negatively impacted.

Below is a summary of Itron’s financials for the last 5 years:

Year	2007**	2006*	2005	2004	2003	2002
Revenue	983.5	644M	552M	399M	317M	285M
Net Income	-20.1M	33.8M	33M	-5.3M	10.5M	8.7M
Shares Outstanding	30.4M	26.3M	24.8M	20.9M	21.7M	21.4M
Net Income/Share	-0.69	1.28	1.33	-0.25	0.48	0.41
Net Profit Margin	-2.04	5.25	5.98	-1.32	3.31	3.05

• * Comparables show negative growth for 2007 without Actaris contribution largely due to a one-time contract from Progress Energy, which accounted for $60M of revenue in the first 6 months of 2006.
• ** First 9 months of 2007 only. Include contribution from Actaris. Numbers are negative as acquisition related expensing of in-process R&D ($35.8M) and amortization of intangible assets ($58.1M) offset by a tax benefit (13.2M) are factored in.

The stock trades at 24 times next years earnings estimate. Though this is a fairly rich valuation the price is justified given the PEG ratio is below 1 and the expectation is for the company to have earnings growth of about 27% in the next 5 years.

Advanced Metering Infrastructure (AMI) is a segment expecting a growth spurt in the future. Itron’s response to this is the OpenWay, a new meter utilizing CENTRON technology with integrated Zigbee radio-chip for in-home communication. Competition from companies like Echelon (ELON) with products for machine and device automation for commercial, industrial, and residential customers (LonWorks product suite) is a threat. Itron’s product is in an early deployment phase and has the potential to be a good growth area for the company in the coming future.

Another untapped area of growth for Itron is the opportunity to cross introduce products among Itron’s and Actaris’ customers. Executing well in the areas of sales training and implementing both minor and major changes as necessary to their respective products promptly are paramount to realizing the benefits.

Given the growth opportunity and its proven track record of successful execution of the growth strategy, Itron can definitely be a good core holding in the mid-cap growth portion of diversified stock portfolios.

Itron (ITRI) Analysis:

1. Itron (ITRI) - Part 1 - Introduction.
2. Itron (ITRI) - Part 2 - Business Issues.
3. Itron (ITRI) - Part 3 - Outlook.