Waters Corp Valuation – February 2019 $WAT

Company Profile (excerpt from Reuters): Waters Corporation, incorporated on December 6, 1991, is an analytical instrument manufacturer. The Company operates through two segments: Waters and TA. The Company designs, manufactures, sells and services high performance liquid chromatography (HPLC), ultra performance liquid chromatography (UPLC and together with HPLC, referred to as LC) and mass spectrometry (MS) technology systems and support products, including chromatography columns, other consumable products and post-warranty service plans. In addition, the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments through its TA product line. The Company is also a developer and supplier of software-based products that interface with the Company’s instruments, as well as other suppliers’ instruments, and are purchased by customers as part of the instrument system.

WAT Chart

WAT data by YCharts


Downloadable PDF version of this valuation:

ModernGraham Valuation of WAT – February 2019

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 $17,776,758,517 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.26 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 21.95% Fail
6. Moderate PEmg Ratio PEmg < 20 36.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.28 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 2.26 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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

EPSmg $6.35
MG Growth Estimate 3.05%
MG Value $92.82
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $92.14
MG Value based on 0% Growth $54.01
Market Implied Growth Rate 14.22%
Current Price $234.69
% of Intrinsic Value 252.85%

Waters Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and 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 $5.28 in 2015 to an estimated $6.35 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.22% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Waters Corporation revealed the company was trading above its Graham Number of $65.09. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 36.93, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.77.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.77
Graham Number $65.09
PEmg 36.93
Current Ratio 2.26
PB Ratio 11.28
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 12/1/2018
Total Current Assets $2,595,109,000
Total Current Liabilities $1,148,350,000
Long-Term Debt $0
Total Assets $3,727,426,000
Intangible Assets $602,516,000
Total Liabilities $2,160,168,000
Shares Outstanding (Diluted Average) 75,345,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.10
Dec2018 $7.65
Dec2017 $0.25
Dec2016 $6.41
Dec2015 $5.65
Dec2014 $5.07
Dec2013 $5.20
Dec2012 $5.19
Dec2011 $4.69
Dec2010 $4.06
Dec2009 $3.34
Dec2008 $3.21
Dec2007 $2.62
Dec2006 $2.13
Dec2005 $1.74
Dec2004 $1.82
Dec2003 $1.34
Dec2002 $1.09
Dec2001 $0.83
Dec2000 $1.06
Dec1999 $0.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.35
Dec2018 $4.99
Dec2017 $3.95
Dec2016 $5.70
Dec2015 $5.28
Dec2014 $5.01
Dec2013 $4.82
Dec2012 $4.45
Dec2011 $3.92
Dec2010 $3.38
Dec2009 $2.89
Dec2008 $2.55
Dec2007 $2.12
Dec2006 $1.79
Dec2005 $1.53
Dec2004 $1.36
Dec2003 $1.11

Recommended Reading:

Other ModernGraham posts about the company

Waters Corp Valuation – April 2018 $WAT
Waters Corporation Valuation – November 2016 $WAT
Waters Corporation Valuation – May 2016 $WAT
Waters Corporation Analysis – September 2015 Update $WAT
Waters Corporation Analysis – June 2015 Update $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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