Waters Corp (WAT, Financial) has recently seen a daily gain of 3.38%, though it has experienced a 3-month loss of 9.95%. With an Earnings Per Share (EPS) (EPS) of 11.34, the question arises: is the stock modestly undervalued? This article offers a detailed valuation analysis of Waters, providing investors with a comprehensive insight into the company's intrinsic value.
Company Overview
Waters Corp is a leading provider of liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments offer vital information about various products, such as their molecular structures and physical properties, helping clients enhance the health and well-being of end users. In 2022, Waters generated 59% of its sales from pharmaceutical customers, 31% from industrial clients, and 10% from academic/government institutions. The company's stock price currently stands at $260.67, while its GF Value, an estimate of fair value, is $361.98.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates.
According to GuruFocus Value calculation, Waters (WAT, Financial) is believed to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth. At its current price of $260.67 per share and the market cap of $15.40 billion, Waters stock seems to be modestly undervalued.
Financial Strength
Investing in companies with poor financial strength can result in a higher risk of permanent loss of capital. Therefore, it's essential to thoroughly review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Waters has a cash-to-debt ratio of 0.12, which is worse than 86.73% of 226 companies in the Medical Diagnostics & Research industry. GuruFocus ranks the overall financial strength of Waters at 5 out of 10, indicating that the financial strength of Waters is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Waters has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and Earnings Per Share (EPS) of $11.34. Its operating margin is 28.48%, which ranks better than 94.27% of 227 companies in the Medical Diagnostics & Research industry. Overall, the profitability of Waters is ranked 10 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Waters is11.7%, which ranks better than 52.24% of 201 companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth rate is 11.4%, which ranks better than 50.27% of 185 companies in the Medical Diagnostics & Research industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Waters's return on invested capital is 25.64, and its cost of capital is 9.75.
Conclusion
In conclusion, Waters Corp (WAT, Financial) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 50.27% of 185 companies in the Medical Diagnostics & Research industry. To learn more about Waters stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
