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Tickers in this Article: ITRI, CGNX, FEIC, ALOG
On Jul 12, we maintained our Underperform recommendation on Itron, Inc. (ITRI) based on decline in bookings and backlog, a challenging U.S. market, muted spending in European countries and recent weakness in the Latin American residential business.

Why Reiterated?

Itron’s first-quarter 2013 adjusted earnings fell 66% year over year to 31 cents per share, while revenues dipped 22% to $448 million. The decline in revenues was mainly due to the Energy segment after the completion of several OpenWay projects in North America.

The company witnessed surprisingly weak demand trends in January/February. Though it somewhat improved in March/April, there were some regional issues. Given the weak start to the year, Itron will need contribution from new large contract wins to achieve its full-year growth target. Furthermore, the completion of the OpenWay projects is expected to impact revenues negatively in the next few quarters.

Itron’s bookings in the quarter declined to $447 million from $467 million in the preceding quarter and backlog at the end of the quarter was $1.029 billion versus $1.035 billion at the end of the fourth quarter of 2012.

Itron did not provide specific 2013 guidance based on its bi-annual guidance policy. However, the company indicated that growth will be slow across several of its businesses. Some countries in Europe will continue to restrict spending and adopt austerity plans, which will also affect Itron’s utility customers.

The company continues to face a more challenged competitive environment in the U.S. for water and gas metering markets as an increasing number of vendors are focusing on these segments to offset softer electric AMI markets. The company also noted a slowdown in Latin America residential business largely due to Brazil’s decision to ramp back its smart meter mandates.

Other Stocks to Consider

In contrast to Itron, other stocks in the industry that are currently performing well and have a good visibility include Analogic Corporation (ALOG), Cognex Corporation (CGNX) and FEI Company (FEIC). All these three stocks carry a Zacks Rank #2 (Buy)

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