Knobias ClipReport (7-20-2007)

Submitted from Knobias ClipReport

The earnings season is in full swing with early indications of the quarter pushing the overall market higher in the face of inflationary concerns and rising energy prices. The rhetoric surrounding the market seems like a broken record from first quarter earnings season which saw many analysts lowering expectations with the thoughts of a slow down ahead. Fast forward 3 months and the same words are still being spoken.

Technology has been one of the hot sectors so far with IBM leading the way during Thursday’s session. Google and Microsoft were next with tempered expectations heading into their reports after the bell.

In the small cap space, one name caught the eye of many who realized the sector they were operating in was one with tremendous growth opportunities.

Meter readers are becoming a thing of the past. These striders have been known to walk upwards of 12 miles a day and physically examine each and every meter on their respective routes. New technology has led early adopters and developing areas to use automated meter readers or AMR’s.

These AMR’s also take out the human error factor which remarkably isn’t very substantial considering the amount of fatigue meter readers are subject to during the course of the day.

One company that is heavily involved in the space recently reported record earnings for the second quarter. Badger Meter Incorporated (BMI) is a marketer and manufacturer of products using flow measurement and control technologies developed both internally and with other technology companies. Its products are used to measure and control the flow of liquids in a variety of applications as well in providing digital connectivity to leading AMR technologies.

The Company’s net sales from continuing operations were a record $62,173,000 for the second quarter of 2007, a 5.7% increase from sales of $58,841,000 for the same period in 2006. Earnings from continuing operations were a record $5,720,000 or $0.39 per diluted share for the second quarter of 2007, a 13.1% increase from earnings from continuing operations of $5,058,000 or $0.35 per diluted share for the second quarter of 2006 and an almost 40% surprise to the upside compared to analysts’ estimates.

"This was an excellent quarter for Badger Meter, with second quarter sales and earnings that set new records for the quarter and for any quarter in our history. A double-digit increase in sales of our ORION(R) proprietary mobile radio frequency AMR system drove our strong second quarter performance. Sales in our industrial markets also increased, led by our impeller and automotive products," said Richard A. Meeusen, chairman, president and chief executive officer in the Company’s press release.

The news sent shares soaring 15% to 52 week highs of $35.90. But the Company isn’t the only one involved in the sector. Metretek Technologies (MEK) is a diversified provider of energy technology products, services and data management systems to industrial and commercial users and suppliers of natural gas and electricity.

The Company conducts ongoing operations through three subsidiaries, which provide a range of products and services to the natural gas industry and to commercial and industrial consumers of natural gas and electricity.

The Company’s Southern Flow subsidiary provides full range of measurement, calibration and analytical services to natural gas producers, oil, gas and petrochemical companies and gas gathering, pipeline and transmission companies. The Metretek Florida subsidiary provides tools that collect data from a large assortment of devices including vending machines, copiers, remote generators, gas & electric meters, as well as, a number of other types of remote field devices. The Powerspring portion of the subsidiary provides the automatic meter reading products and services. Commercial and industrial energy customers can view and analyze their natural gas and electric usage at any time on the Internet through this secure, personalized portal. Their PowerSecure subsidiary is an integrator of distributed peak generation and energy information management systems that allow clients to take advantage of real-time pricing, peak shaving and load-interruption utility incentives.

While the PowerSecure subsidiary provides an immense portion of the Company’s revenue (83% during 2006), the Metretek subsidiary with the AMR supplying Powerspring portion, could provide the highest percentage gain in revenue for the rest of the year.

With the diversification present in the Company, along with the growing number of customers that the PowerSecure section has accumulated, the name is certainly one to watch considering Badger Meter Inc.’s trailing P/E ratio following its earnings report of 38+. Metretek’s P/E of 20 looks cheap, especially considering that second half earnings are expected to show substantial top and bottom line growth. With a successful restructuring and expensing of costs associated with the retirement of the founders which should be displayed on the second quarter’s numbers expected to be released August 8th, the name is certainly one to follow over the coming quarters. Investors would be wise to watch.


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