As of July 21, 2023, Waters Corp (WAT, Financial) saw a daily gain of 3.2%, with its stock price reaching $288.72. With a market cap of $17 billion and earnings per share of $11.51, the company's GF Value stands at $357.34, indicating it is modestly undervalued. This valuation status is based on GuruFocus' unique GF Value indicator, which combines historical trading multiples, an adjustment factor based on past performance and growth, and estimates of future business performance.
Waters Corp is a leading player in the medical diagnostics and research industry. The company specializes in selling liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments provide crucial information on various products, such as their molecular structures and physical properties. With a sales revenue of $3 billion in 2022, Waters generated 59% from pharmaceutical customers, 31% from industrial clients, and 10% from academic/government institutions.
GF Value: An Estimation of Fair Value
The GF Value of Waters Corp (WAT, Financial) suggests that the stock is modestly undervalued. This valuation is based on a combination of the company's historical trading multiples, GuruFocus' internal adjustment factor, and analyst estimates of future business performance. If a stock's price significantly exceeds the GF Value Line, it may be overvalued and could offer poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, promising high future returns. Given Waters' current price and market cap, the stock appears to be modestly undervalued.
Since Waters is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength and Profitability
Investing in companies with robust financial strength reduces the risk of permanent loss. Waters' cash-to-debt ratio of 0.31 is lower than 74.58% of companies in the Medical Diagnostics & Research industry, indicating fair financial strength. The company has consistently been profitable over the past decade, with an operating margin of 28.73%, ranking better than 95.15% of its industry peers.
Growth and ROIC vs WACC
Growth is a critical factor in a company's valuation. Waters' 3-year average annual revenue growth rate is 11.7%, ranking better than 51.49% of companies in its industry. However, its 3-year average EBITDA growth rate is 11.4%, slightly lower than its peers. Another profitability measure is the comparison of its Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC). Waters' ROIC of 29.13 surpasses its WACC of 8.97, indicating the company is creating value for shareholders.
Conclusion
In conclusion, Waters Corp (WAT, Financial) appears to be a modestly undervalued stock. Although the company's growth rate is lower than some of its industry peers, its financial condition is fair, and its profitability is strong. For more detailed information about Waters Corp, check out its 30-Year Financials here.
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