Waters Corporation Valuation – May 2016 $WAT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Waters Corporation (WAT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Waters Corporation is an analytical instrument manufacturer. The Company designs, manufactures, distributes and services instrument systems, columns and other chemistry consumables that are integrated and used along with other analytical instruments. The Company operates through two segments: Waters Division and TA Division. Its Waters Division’s products and services primarily consist of high performance liquid chromatography, ultra performance liquid chromatography, mass spectrometry and chemistry consumable products and related services. TA Division’s products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. Its products are used by pharmaceutical, life science, biochemical, industrial, nutritional safety, environmental, academic and governmental customers working in research and development, quality assurance and other laboratory applications.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of WAT – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,940,909,123 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.32 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 85.61% Pass
6. Moderate PEmg Ratio PEmg < 20 23.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.26 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.32 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.57 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

WAT charts May 2016

EPSmg $5.66
MG Growth Estimate 4.07%
MG Value $94.18
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $82.07
MG Value based on 0% Growth $48.11
Market Implied Growth Rate 7.65%
Current Price $134.76
% of Intrinsic Value 143.08%

Waters Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.45 in 2012 to an estimated $5.66 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Waters Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

WAT value chart May 2016

Net Current Asset Value (NCAV) $12.73
Graham Number $60.68
PEmg 23.81
Current Ratio 6.32
PB Ratio 5.26
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $3,310,619,000
Total Current Liabilities $524,030,000
Long-term Debt $1,593,301,000
Total Assets $4,368,395,000
Intangible Assets $580,244,000
Total Liabilities $2,266,709,000
Shares Outstanding (Diluted Average) 81,974,000

Earnings Per Share History

Next Fiscal Year Estimate $6.30
12/1/2015 $5.65
12/1/2014 $5.07
12/1/2013 $5.20
12/1/2012 $5.19
12/1/2011 $4.69
12/1/2010 $4.06
12/1/2009 $3.34
12/1/2008 $3.21
12/1/2007 $2.62
12/1/2006 $2.13
12/1/2005 $1.74
12/1/2004 $1.82
12/1/2003 $1.34
12/1/2002 $1.09
12/1/2001 $0.83
12/1/2000 $1.06
12/1/1999 $0.92
12/1/1998 $0.57
12/1/1997 -$0.08
12/1/1996 -$0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.66
12/1/2015 $5.28
12/1/2014 $5.01
12/1/2013 $4.82
12/1/2012 $4.45
12/1/2011 $3.92
12/1/2010 $3.38
12/1/2009 $2.89
12/1/2008 $2.55
12/1/2007 $2.12
12/1/2006 $1.79
12/1/2005 $1.53
12/1/2004 $1.36
12/1/2003 $1.11
12/1/2002 $0.96
12/1/2001 $0.81
12/1/2000 $0.70

Recommended Reading:

Other ModernGraham posts about the company

Waters Corporation Analysis – September 2015 Update $WAT
Waters Corporation Analysis – September 2015 Update $WAT
Waters Corporation Analysis – June 2015 Update $WAT
18 Companies in the Spotlight This Week – 3/15/15
Waters Corporation Quarterly Valuation – March 2015 $WAT

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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