UPDATE 1-Esco jumps on contract talks with SoCalGas; Itron dips

(Adds details on Itron, comments from analysts and SoCalGas)

BANGALORE, July 22 (Reuters) - Shares of Esco Technologies Inc ESE.N rose as much as 20 percent Thursday, a day after the industrial products maker said it has been selected by a Sempra Energy SRE.N subsidiary for a major contract negotiation.

Late Wednesday, Esco said Sempra’s Southern California Gas Co (SoCalGas) has selected it for “negotiation of a definitive agreement” for SoCalGas’ Advanced Metering Infrastructure (AMI) project. For the company release, click [ID:nPnCG38457]

The same news sent down shares of Itron ITRI.O as much as 16 percent as the smart-grid maker was expected to win the contract, valued as high as $400 million by analysts.

RBC Capital Markets, which raised its price target on the Esco stock by $4 to $28, said the timing of the announcement was unusual as Sempra was still in early stages of talks with various vendors for the AMI contract.

“While uncertainty remains regarding the final vendor, we believe the announcement by Esco implies that it has regained a leading position,” said analyst Stuart Bush.

SoCalGas spokeswoman Laurie Kasper Gwyn told Reuters it has just entered into negotiations with Esco. She did not comment on talks with other vendors.

In April, the California Public Utilities Commission cleared SoCalGas’ AMI program and approved $1.05 billion for the project from 2010 through 2017.

The project calls for replacing and retrofitting about 6 million natural gas meters with wireless communications modules throughout its service territory beginning in mid-2012.

Anlayst Bush said if Esco wins the contract, it will regain the lead in the gas market with two of the largest stand-alone gas AMI projects using its technology: PG&E and SoCalGas.

Itron, meanwhile, lost as much as $409 million in market cap -- almost as much as the assumed value of the contract.

“We believe this contract was a part of the bull case on the Itron shares and is a major loss for the company,” said Stifel Nicolaus analyst Jeff Osborne.

Analysts also said this news highlighted increasing competition for Itron in an environment where the number of major contracts continue to shrink.

Recently, some of the major contracts in the AMI market were won by Itron’s competitors Sensus and Trilliant.

Itron was not immediately available for comment.

Its shares were trading down $4.93 at $57.80 Thursday on Nasdaq. They touched a low of $52.58 earlier.

Esco shares were up $4.57, or about 18 percent, at $29.45 on the New York Stock Exchange. They touched a high of $29.80 earlier. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Don Sebastian)