Itron's Supply Challenges Reset The Story, But Long-Term Drivers Still In Play

 

Most companies have found recent semiconductor shortages to be a hassle, but a somewhat manageable one – at worst, they have capped near-term upside. Not so for Itron (ITRI), with this metering and grid technology company posting a significant miss-and-lower quarter in early August on persistent chip shortages. While many sell-side analysts have charactered this as “revenue deferred, not revenue destroyed”, I note that they haven’t really modelled any sort of “catch up” in 2022 or beyond.

Itron shares are down about 10% since my mid-March article flagging them as an attractive GARP story with strong leverage to grid automation and modernization. I still believe that to be an entirely valid thesis, though clearly there needs to be some remedial work done on “reenforcing” the supply chain, as this isn’t the first time that a component shortage has hit the company’s results (there were issues in 2018 as well).

In contrast to the sell-side, I am modeling some catch-up revenue growth in the years after 2022, so I do run the risk of excessively high expectations for 2023-2026, with a long-term revenue growth rate still in the 6% to 8% range. Although weaker near-term earnings and margins compromise the multiples-based valuation, the shares do now look attractively-priced on a longer-term discounted cash flow basis.

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Itron's Supply Challenges Reset The Story, But Long-Term Drivers Still In Play