Badger Meter Surges 15% YTD: How Should Investors Play the Stock?

Badger Meter, Inc. BMI, a leading provider of smart water solutions, has witnessed a stock price gain of 14.9% year to date (“YTD”), outpacing the S&P 500 composite decline of 1.1% and the Instruments-Control industry’s growth of 9.7%.

BMI was down 1.4% in the last session and closed trading at $243.68. The stock is trading closer to its 52-week high of $249.65. Will the stock register further gains or will it start coming down?

As investors contemplate how to strategize their investment, let us dive into BMI’s pros & cons and determine the best course of action for your portfolio.

BMI’s Positive Long-Term Outlook 

Demand for digital smart water solutions has been increasing, attributed to secular challenges in the water industry. Regulatory pressures, aging infrastructure and climate-related extreme weather events are driving the adoption of smart water technologies, creating a favorable backdrop for BMI's products and services. Some macroeconomic factors, such as the need for replacement-driven demand, the rise of AMI adoption and increasing demand for real-time data visualization and analytics, are additional tailwinds. 

BMI has been witnessing strong demand for meters (both mechanical and E-Series Ultrasonic), ORION Cellular endpoints and associated BEACON Software-as-a-Service (SaaS) revenues. 

Badger Meter is continuously prioritizing and enhancing its presence in selected regional markets outside the United States that offer healthy growth potential. The company is likely to benefit by expanding its market share in water-related applications.

Strategic acquisitions have played a pivotal role in expanding business operations for Badger Meter. In January 2025, it announced the acquisition of SmartCover Systems from XPV Water Partners for a $185 million, all-cash deal. SmartCover is a leading provider of water collection system monitoring solutions across North America.

With $35 million in annual revenues, SmartCover provides sensors, software and services that enable utilities to monitor sewer levels 24/7, detect potential issues and prevent sewer overflows, reducing costs and protecting public health. Its technology also minimizes the need for frequent cleanings, detects inflow and infiltration, prevents intrusion and reduces harmful sewer gases. 

This acquisition expands Badger Meter’s BlueEdge suite, adding real-time monitoring for sewer lines and lift stations to its existing water management solutions. Additionally, its lift station monitoring solutions improve pump station efficiency, complementing existing Telog offerings. Within months, SmartCover has already made a noticeable impact with $6 million in revenue contribution. 

Badger Meter is likely to benefit from a strong cash position driven by solid earnings conversion. The company reported a record quarterly free cash flow of $30 million, which increased 60% year over year on the back of improved earnings and effective working capital management. Favorable structural mix and SEA leverage are driving margins. As of March 31, 2025, Badger Meter had $131.4 million in cash and cash equivalents.

Several Challenges Loom Ahead for BMI

Rising expenses and intense competition amid broader market volatility and tariff troubles remain concerns. Management currently expects the ongoing tariff uncertainty and volatility to persist throughout the year. It is anticipated that U.S. manufacturing operations, even those compliant with Buy America Build America, might be exposed to import tariffs on electronics and components from regions like China, Southeast Asia and Israel, implying that higher input costs due to tariffs are likely under the current setup. The company may also be subject to tariffs on finished goods imported from its facilities in Europe.

While these items make up a small portion of overall sales, there could be a need for selective price increases to offset the impact. China's export controls on rare earth elements (including bismuth), in retaliation for U.S.-imposed tariffs, have led to a sharp rise in prices, nearly 10 times this year. Since China supplies more than 90% of the world's bismuth and is part of the brass ingot mix, there's no short-term alternative. Cost pressures cannot be eased through sourcing, so price increases will be necessary.

In the first quarter of 2025, SEA expenses were $46 million compared with $40 million in the prior-year quarter. The rise was mainly as a result of incorporating SmartCover, which accounted for about $1.1 million in amortization of intangible assets. SEA was up 8.2% in 2024 year over year. Increasing expenses amid a volatile global macroeconomic environment are likely to dent Badger Meter’s margins, thereby hurting its financial performance.
Sales for the flow instrumentation product lines are being affected by lower demand in the deemphasized array of market applications, which is offsetting modest growth in water-related end markets.

Management acknowledged that the second quarter will face tough year-over-year comps. However, the company maintains its long-term outlook of high single-digit revenue growth, supported by industry tailwinds in water infrastructure, continued adoption of smart, connected technologies and operational agility to navigate tariffs and supply-chain volatility.

BMI’s Premium Valuation & Estimate Revision Activity

BMI stock is trading at a significant premium, with a forward 12-month price/earnings of 48.48X compared with the industry’s 18.96X. While the company’s long-term growth potential justifies this premium to an extent, rising costs, competition and integration challenges warrant caution.

Given these factors, analysts seem bearish about the stock, which is evident from the downward revision in earnings estimates. In the past 60 days, analysts have decreased their earnings estimates for the current quarter by 0.9% to $1.16 per share.

How to Play BMI Stock?

The company's strong position in the growing smart water solutions market, supported by secular trends, gives it a durable competitive edge. Strategic acquisitions like SmartCover are already contributing meaningfully to revenues and enhancing product capabilities. While valuation is expensive and short-term cost pressures exist, robust free cash flow and a solid balance sheet provide financial flexibility.

Therefore, we believe new investors should wait for a better entry point and existing investors should retain BMI stock, which currently carries a Zacks Rank #3 (Hold). 

Stocks to Consider

Some better-ranked stocks from the broader technology space are Blackbaud Inc. BLKB, CommVault Systems. CVLT and Pegasystems PEGA. BLKB currently sports a Zacks Rank #1 (Strong Buy), whereas CVLT and PEGA carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BLKB’s 2025 EPS is pegged at $4.23, unchanged in the past seven days. BLKB’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, while missing and reporting in line on the remaining two occasions, with the average surprise being 1.2%. The stock has declined 21.6% in the past year.

The Zacks Consensus Estimate for CVLT’s fiscal 2026 earnings is pegged at $4.11, unchanged in the past seven days. CVLT’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 10.7%. Its shares have gained 57.7% in the past year.

The Zacks Consensus Estimate for PEGA’s fiscal 2025 EPS is pegged at $3.26, unchanged in the past seven days. PEGA’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 94.1%. The stock has risen 64.2% in the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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