Itron ITRI stock has proved resilient amid a volatile market environment with a 22% gain in the past three months, outperforming its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 10.7%, 16.8% and 12.6%, respectively. The stock has risen 56.4% year to date.

Strong market demand in both the energy and water sectors has been driving the adoption of Itron’s solutions. ITRI outpaced estimates in each of the trailing four quarters, with the average surprise being 49.7%.

Three-Month Price Performance Chart

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ITRI stock closed the last trading session at $118.09, down 5.5% from its 52-week high of $124.90. Does this recent pullback signal a buying opportunity? Let us discuss ITRI’s prospects and determine the best course of action for your portfolio.

Positive Market Demand Trends to Drive ITRI’s Growth

Steady overall market demand remains the primary growth driver for Itron. Revenues expanded 10% year over year in the last reported quarter, driven by demand and strong operational execution amid a challenging macroeconomic environment. 

Itron’s bookings were $487 million and its backlog amounted to $4 billion at the end of the reported quarter. Bookings in the third quarter included notable utility players like Arkansas Valley Electric Cooperative, CenterPoint Energy and Duke Energy. 

These bookings involve the uptake of Itron’s GenX technology, advanced grid intelligence and smart energy solutions, solidifying its competitive position in the expanding utility market. This substantial backlog provides visibility into Itron’s revenue prospects. 

The Grid Edge Intelligence platform’s growth has been driven by various factors, including data center-related demand growth, reindustrialization and production localization, as well as electrification of transportation and homes. Itron added that automation of water infrastructure, safety applications for gas customers and the digitalization of its operations were other growth drivers. Also, the acquisition of Elpis Squared expanded the Grid Edge Intelligence platform’s solutions.

Itron’s Upbeat Outlook

Strong demand trends, effective operational performance and the schedule of customer shipments led to an increase in revenue guidance for 2024. Management expects revenues to be between $2.428 billion and $2.438 billion compared with the previous guidance of $2.385-$2.415 billion, given in July 2024.

Higher revenues are expected to boost earnings as well. Non-GAAP EPS is currently estimated in the $5.28-$5.38 band compared with $4.45-$4.65 anticipated in July 2024.

Operational Efficiency Driving ITRI’s Margin Expansion

Itron’s gross margin was 34.1%, which expanded 70 basis points on a year-over-year basis. This was due to improved operational efficiencies. Non-GAAP operating income was $79 million compared with $59 million in the year-ago quarter. This upside was driven by higher gross profit and revenues.

ITRI’s Technical Indicators & Valuation

ITRI presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 24.11X, slightly lower than the industry average of 24.65X observed in the last year.

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Technical indicators are also supportive of ITRI’s strong performance. The stock is trading above its 50 and 100-day moving averages, indicating upward momentum and price stability. This technical strength indicates positive market perception and confidence in its growth prospects.

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ITRI’s Increasing Costs and Debt Load Are Concerns

Macroeconomic uncertainty and volatile supply-chain dynamics continue to remain concerns. Increasing expenses, especially on research and development, are alarming. In 2023, total operating expenses increased 10.5% to $585 million. In the third quarter of 2024, non-GAAP operating expenses of $130.6 million inched up 1.9% year over year due to higher sales and general and administrative costs. These factors might exert pressure on the margins, at least in the near term.

Itron also has a leveraged balance sheet. As of Sept. 30, cash and cash equivalents totaled $982.5 million. Long-term debt at the end of third-quarter 2024 was $1.24 billion. The company's debt-to-capital ratio of 47.6% indicates a higher risk. Accumulating high debt levels might restrict sufficient cash flow generation, which is needed to meet future debt obligations. This may keep the company away from accessing the debt market and refinancing at suitable rates.

Mixed Estimate Revision Activity for ITRI

In the past 60 days, analysts have increased their earnings estimate for the current quarter by 4% whereas the estimate for the next quarter has been revised downward by 6%. The earnings estimate for the current and the next year has been revised upward by 14.9% and 1.7%, respectively.

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How Should Investors Play ITRI Stock?

At present, ITRI carries a Zacks Rank #3 (Hold).

Increasing business pipeline activities and favorable macro trends look attractive. However, the company’s higher cost and debt load remain concerning, especially in a challenging macro environment and increasing competitive pressures.

Consequently, it might not be a judicious investment decision to bet on the stock at the moment but long-term investors already owning the stock can stay put.

Stocks to Consider

Some better-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, InterDigital, Inc. IDCC and Workday Inc. WDAY. PLXS & IDCC presently sport a Zacks Rank #1 (Strong Buy), whereas WDAY carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 65.5% in the past year.

The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past 30 days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 94% in the past year.

The Zacks Consensus Estimate for WDAY’s fiscal 2025 EPS is pegged at $7.11, up 2% in the past 30 days. WDAY’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 9.3%. The stock has inched up 0.9% in the past year.

 

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