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Waters Corp WAT

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Morningstar’s Analysis

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Waters' Growth Decelerates in Third Quarter and Shares Remain Overvalued

Julie Utterback, CFA Senior Equity Analyst

Analyst Note

| Julie Utterback, CFA |

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.

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Company Profile

Business Description

Water sells liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments provide essential information on various products, such as their molecular structures and physical properties, to help clients enhance the health and well-being of end users. As a percentage of sales in 2020, Waters generated 59% from pharmaceutical customers, 30% from industrial clients, and 11% from academic/government institutions.

34 Maple Street
Milford, MA, 01757
T +1 508 478-2000
Sector Healthcare
Industry Diagnostics & Research
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Slow Growth
Employees 7,400