Company Reports

Wide-moat Waters turned in a solid end to what wound up being a very challenging year for most life science companies and guided for more constraints in 2024. While management's 2024 outlook was weaker than we had anticipated, cash flows generated since our last valuation change offset that in our model, and we are maintaining our $323 fair value estimate. Waters shares remain about fairly valued, in our opinion.

Wide-moat Waters reported weak China demand in the third quarter that was more than offset by margin expansion on the bottom line. However, continued China and currency challenges caused management to push down its 2023 sales and adjusted EPS guidance a bit. At first glance, this reduction in 2023 expectations does not materially affect our $323 fair value estimate, though, and shares look moderately undervalued.

Wide-moat Waters reported weak second-quarter results, as biopharmaceutical clients in China reined in spending on its tools, causing management to push down its sales and adjusted EPS guidance for 2023. However, at first glance, this further reset of 2023 expectations does not materially affect our $323 fair value estimate, and Waters management highlighted some early signs of a rebound to which shares are reacting positively.

Life science toolmakers that enable drug production operate attractive businesses for two major reasons that investors often find compelling. First, regulation of the drug manufacturing process creates highly durable switching costs for end users and long potential revenue streams for life science toolmakers. Second, life science firms often benefit from broad exposure to biopharmaceutical growth without taking on much product-specific risk.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (nearly 90% of sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (low-double digits percentage).

Wide-moat Waters reported weak first-quarter results, as biopharmaceutical clients reined in spending on its tools, and management pushed down its sales guidance for 2023. However, the team also maintained its profit expectations for the year, and at first glance, we expect to maintain our $280 fair value estimate based on this announcement. Waters shares look about fairly valued, in our opinion.

Wide-moat Waters reported strong fourth-quarter results that helped it slightly exceed our expectations in 2022. However, its guidance for 2023 appears roughly as expected, and the Wyatt acquisition announcement (light scattering technology used primarily in large molecule analysis) looks a bit pricy. We are maintaining our $280 fair value estimate, and shares continue to trade moderately above that.

Wide-moat Waters reported strong underlying third-quarter results, but management trimmed its full-year adjusted EPS guidance on foreign currency exchange headwinds. Considering recently generated cash flows and the strong underlying demand, we are boosting our fair value estimate by the midsingle digits on a percentage basis. After being significantly overvalued during most of the pandemic, Waters' shares are now only slightly above fair value, in our opinion.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (89% of 2021 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (11%).

Wide-moat Waters reported solid second-quarter results that slightly outpaced management's expectations, despite headwinds including the China lockdown. However, Waters did not materially change its 2022 bottom-line outlook, which is being constrained by foreign-currency headwinds. At first glance, we do not anticipate changing our fair value estimate and continue to view shares as overvalued, recently trading at about 30 times forward earnings with a long-term earnings growth goal in the high-single to low-double digits.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (89% of 2021 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (11%).

Waters reported strong first-quarter operating results, and we've raised our fair value estimate by 5%, based on stronger-than-expected results in recent quarters (100 basis points of the increase) and cash flows generated since our last valuation change (400 basis points). We continue to appreciate the durability of Waters' business model, too, which is reflected in its wide moat rating. The key durability driver of its switching cost moat source—sales to biopharmaceutical firms (60% of first-quarter sales) related to client manufacturing processes—can lead to decades-long revenue streams and continues to grow at a strong clip.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (about 90% of 2020 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (10%).

Waters turned in fourth-quarter results that led to a mildly stronger bottom line than we were expecting for 2021. The firm's 2022 guidance looks a bit weaker on the top line but right in line with what we expect on the bottom line, and we do not anticipate changing our $250 fair value estimate based on this announcement. At roughly 27 times expected 2022 earnings, we think investors are paying a hefty price tag for a firm that will likely 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 Waters' wide moat rating, and the key durability driver--sales to pharmaceutical firms (59% of fourth-quarter sales)--can lead to decadeslong revenue streams and continues to grow at a decent clip.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (about 90% of 2020 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (10%).

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.

Wide-moat Waters reported outstanding second-quarter operating results that handily beat FactSet consensus, and management increased its outlook for 2021 above our expectations. As we raise our near-term expectations for recent trends and recognize cash flows generated since our last valuation update, we have increased our fair value estimate significantly to $235, but still well below the Aug. 2 close of $390. At over 35 times forward earnings for a firm likely to produce low-double-digit EPS growth annually in the long run, the shares remain rich, in our view.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (about 90% of 2020 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (10%).

Wide-moat Waters reported outstanding first-quarter operating results that handily beat FactSet consensus, and management increased its outlook for 2021 mildly above our expectations. We may raise our 2021 expectations slightly, but at first glance, we do not expect to materially change our fair value estimate, which we just raised in February and is driven by much longer-term expectations. The shares look rich to us at roughly 30 times forward earnings for a firm that is likely to increase adjusted EPS in the low double digits in the long run.

Waters' tools help clients perform scientific research by providing analytical instruments, services, and supplies. The company specializes in liquid chromatography and mass spectrometry products (about 90% of 2020 sales), which are used primarily by pharmaceutical firms to analyze a molecule’s structure during the drug discovery, development, and production processes. These tools can also be used in food and environmental quality testing as well as other industrial applications. Additionally, Waters helps scientists examine the physical properties of various materials through its thermal analysis tools (10%).