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4 Burning Questions: How Itron Lost Mojo

Stocks in this article: ITRI ESE

NEW YORK ( TheStreet) -- For investors who follow currents in the smart grid space, there's no avoiding smart grid stock bellwether Itron (ITRI), or the fact that Itron seems to have lost some of its buzz.

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Itron shares were the market's biggest loser on Thursday, down 10%, after it reported a 2011 outlook that disappointed investors and the Street. Yet to say the handwriting was on the wall for a weaker outlook from Itron would be an understatement.

Consider this example: Itron reports record quarterly results, but sells off on fears of a peak in its business being reached as investors take profits. That happened, but not during the most recent quarter. This was the reaction to the Itron October earnings report, when a record set of numbers was reported and shares of the company declined.

Additionally, late last July, Itron shares dipped when competitor Esco Technologies (ESE) announced that it was in negotiations for a contract that the market thought was slated to be won by Itron, and that surprise news set off fears that Itron's competitive position was weakening, and that it wouldn't be able to replace existing contracts rolling over with new orders. In fact, Itron's share price was even lower after the Esco news in July than Itron shares are today (look at the chart above comparing the direction in the share prices of Itron and Esco above, too).

The exact 2011 outlook number in this week's Itron results that spooked investors was for earnings of $3.95 to $4.40 a share on revenue of $2.15 billion to $2.3 billion. The Street was ahead of the mid-point of the Itron guidance at $4.37 earnings per share, on sales of higher consensus revenue of $2.36 billion.

The bears have been out there awaiting the Itron short circuit and it was finally delivered with a revenue outlook for 2011 that implies a slowing growth profile.

Nevertheless, the key questions for Itron center on whether 1) the slowing growth profile is indicative of a sea change in the smart grid market from which Itron won't likely recover, or 2) it is just a matter of revenue "lumpiness," and Itron will still have the chance to win some new contracts and return to the revenue profile formerly attached to it shares.

Itron shares are near the low-end of their 52-week range after the earnings dip of 10%, below the $57 mark (it's 52-week low is $52, reached not that long ago, in December of 2010). From the time of Itron record third quarter earnings to December, it was more or less a straight "down" trading chart for the company.

Click on for a few of the key smart grid and Itron issues to consider....

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