Summary
Waters Corporation is performing well right now after a few difficult years for revenue and that trend is likely to continue for the foreseeable future.
The company’s future definitely looks bright and, in the long run, it should create value for investors.
But shares just don’t look appealing at current levels, with them either being fairly valued or slightly overpriced.
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alvarez/E+ via Getty Images In the modern era, it is necessary for companies of all sizes and types, particularly those dedicated to the sciences, to have accurate measurements. This is true they are measuring the constituent components of chemicals or other materials, the analysis of unknown compounds, or even things related to temperature. One company that provides the technologies and service is dedicated to meeting this need is Waters Corporation (NYSE: WAT ). Though revenue has experienced a slight pullback in recent years, the company continues to generate attractive cash flow. That picture of strong cash flow is looking to continue through the current fiscal year as well. Ultimately, I suspect the company will soon return to growth and will create value for its investors down the road. But this does not mean that it makes for an attractive opportunity at this time. Though priced at levels that would be considered comparable to other firms, the company’s overall share price looks lofty on an absolute basis. At best, I believe that shares are fairly valued at this time and might even be slightly overvalued in some respects. Understanding Waters Corporation
Waters Corporation provides a wide array of solutions for customers, whether they be in the pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic, or other industries. At present, the company operates under two key operating segments. The first of these, called its Waters segment, provides high performance and ultra-performance liquid chromatography technologies to its customer base. This particular technology helps to identify and analyze constituent components of chemicals and other materials. Through the segment, the company also provides mass spectrometry and liquid chromatography solutions that serve to help in the identification of unknown compounds. On top of all this, the company also provides service and support related to the instruments, software, and accessories that it sells all through this segment. The other key segment that Waters Corporation has is called its Thermal Analysis, or just TA, segment. Through this, the company provides thermal analysis, rheometry, and calorimetry instruments and other solutions. It also has a service side to this segment as well.
Outside of these segments, there are other ways to look at the company and how it operates. In fact, the company even goes so far as to not report the percent of sales that comes from each one of these two segments. Instead, they divide the data up in two instruments, consumables, informatics, and services as separate categories. Emphasizing the 2019 fiscal year, due solely to the fact that 2020 proved to be an irregular year for most any firm, the company boasts that 45% of its revenue comes from instruments. The next largest source of sales would be services, while consumables make up 17%. Informatics comprise the remaining 9%. What is noteworthy here is that the company claims that over 50% of its revenue is recurring in nature. *Taken from Waters Corporation
Customer concentration and geography are also important factors to keep in mind. For instance, while 57% of the company’s revenue comes from the pharmaceutical space, a further 17% is attributable to materials sciences. The food and environmental industries account for 14%, while clinical customers make up 8%. Biomedical research comprises the remaining 4% of sales. Geographically, the company is surprisingly diverse. While the US is still its greatest area of concentration, accounting for 29% of sales, China is the country that makes up the next largest portion of revenue. It made up 18% of sales in 2019. The rest of the Asia Pacific region accounted for another 22%. Europe made up 26%, while all other parts of the world comprised 5%. *Created by Author
Over the past few years, the financial performance of the company has been slightly mixed. After seeing revenue climb from $2.17 billion in 2016 to $2.42 billion in 2018, it dipped down slightly to $2.41 billion in 2019 before hitting $2.37 billion last year. Fortunately for investors, this decline in revenue should be short lived. In […]
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