Sell meter manufacturer Itron; Buy scoreboard manufacturer Daktronics

One of our U.S. Key stocks is Itron, Inc. (NASDAQ—ITRI). While it remains profitable, we’re disappointed with its mediocre performance.

In 2014, Itron is expected to earn $1.65 a share. That’s up from earnings of $1.14 a share last year (excluding all one-time items). At the same time, these earnings are far less than the $3.22 a share that Itron earned in 2012.

The main problem is Itron’s electric meters business. Although its revenue rose, this segment’s operating profit margin deteriorated and remains negative. With 43 per cent of its sales coming from electric meters, this segment is Itron’s largest. It largely offset better earnings in gas meters (29 per cent of revenue) and water meters (28 per cent of revenue).

When we remove a stock from our list of Key stocks, it automatically becomes a ‘sell’. But Itron could prosper over time. Europe, in particular, plans to replace million of mechanical meters with smart, advanced, meters by 2020. So while Itron is officially a sell, patient shareholders might choose to hold.

The thing is there are other ‘Speculative’ U.S. stocks we like better. One is Daktronics, Inc. (NASDAQ—DAKT). It’s the world’s largest supplier of electronic scoreboards, large electronic display systems and digital messaging services. These are used for sports, transportation and communications. The large scoreboards for college and professional sports sell for over $40 million each. The smallest scoreboards sell for as little as $1,000.

Daktronics’ earnings per share have increased by 25.4 per cent over the latest four years (it lost money five years ago). And the shares trade at a price-to-earnings, or P/E, ratio of just under 14 times. Divide the earnings growth rate by the P/E and you get a MGI (or Marpep Growth Index) of 1.8 times. This suggests that the shares are undervalued.

Daktronics has also raised its dividend each year since 2010. It yields an attractive 3.4 per cent. This will draw income-seeking investors. This focus on rewarding the shareholders is only natural. After all, management owns 11.9 per cent of the shares. We’re making Daktronics a U.S. Key stock. It is a buy for long-term share prices gains as well as high and rising dividends.



The Investment Reporter, MPL Communications Inc.
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