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Itron Set to Gain from Strategic Plans, Rising Expenses Hurt

We issued an updated research report on Itron, Inc. ITRI on Jul 4. The company is set to benefit from consistent focus on its strategic plans. Strong bookings and backlog, as well as new projects will likely drive growth. However, elevated expenses and increased competition remain concerns.

Itron’s strategic plans include aggressively driving key operational and administrative efficiencies, implementing restructuring projects and realigning its supply chain. These actions will enable the company to increase the earnings power in any revenue environment and build operating leverage for future revenue growth.

Notably, Itron’s total backlog at the end of first-quarter 2017 was $1.6 billion, and the 12-month backlog was around $820 million, up 7% and 4%, respectively, year over year. This is the third consecutive quarter of growth in the 12-month backlog, providing better visibility into near-term revenues.

In addition, Itron continues to focus on expanding its portfolio of outcome-based solutions. aimed at higher growth opportunities utilizing the power of OpenWay Riva platform. Further, customer interest in Itron's OpenWay Riva IoT solution continues to be strong. The company has signed 10 OpenWay Riva customers and the list continues to grow.

Itron is adding high-value projects to its backlog each quarter. This includes opportunities to potentially expand Itron's deployments with existing customers like Duke, National Grid, FirstEnergy and AVANGRID among others.

However, Itron will continue to face temporary redundant costs in product development, and general & administrative expenses, while executing its restructuring plans. While these restructuring efforts will result in savings, higher expenses are likely to hurt income in the near term.

Itron‘s liquidity could be affected by the stability of the electricity, gas, and water industries, competitive pressure, changes in estimated liabilities for product warranties and litigation, future business combinations and capital market fluctuations. The company will also potentially face margin pressure due to increased competition in the AMI space, particularly in North America, which could drag down meter prices.

Share Price Performance

Itron has outperformed the Zacks classified Electronics Testing Equipment sub-industry over the past one year with respect to price performance. The stock rallied 59%, while the industry recorded growth of 41.2% over the same time frame.

Itron currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same sector are Agilent Technologies, Inc. A, Teradyne, Inc. TER and Applied Materials, Inc. AMAT. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilent Technologies has an average positive earnings surprise of 11.68% for the trailing four quarters. Teradyne generated an average positive earnings surprise of 25.10% in the past four quarters. Applied Materials delivered an average positive earnings surprise of 3.35% over the last four quarters.

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