Waters' Growth Decelerates in Third Quarter and Shares Remain Overvalued

Waters turned in solid third-quarter results that put it on track to meet our top-line and moderately exceed our bottom-line expectations for 2021. At first glance, we may slightly increase our $235 fair value estimate due to these stellar profit trends, but we think shares will still remain significantly overvalued, especially as growth continues to decelerate to more normal levels. At roughly 33 times expected earnings in 2021, we think investors are paying a hefty price tag for a firm that appears likely to only produce low-double-digit EPS growth annually in the long run. We continue to appreciate the durability of Waters' business model, though, which is reflected in the firm's wide moat rating, and the key driver of that durability--sales to pharmaceutical firms (60% of third-quarter sales) that can lead to decades-long revenue streams--continued to lead Waters with midteens constant-currency growth in the quarter.