Unveiling Waters (WAT)'s Value: Is It Really Priced Right? A Comprehensive Guide
As of October 12, 2023, Waters Corp (NYSE:WAT) experienced a daily loss of 3.47% and a 3-month loss of 5.3%. Despite these losses, the company's Earnings Per Share (EPS) stands strong at 11.34. Given these figures, the question arises: Is the stock modestly undervalued? This article aims to answer this question by offering a comprehensive valuation analysis of Waters Corp. We encourage you to read on to explore the financial intricacies of this company.
Introducing Waters Corp (NYSE:WAT)
Waters Corp is a renowned provider of liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments offer critical information about various products, including their molecular structures and physical properties. This helps 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.
Currently, Waters (NYSE:WAT) trades at $256.95 per share, with a market cap of $15.20 billion. However, its GF Value, a proprietary measure of a stock's intrinsic value, is estimated at $360.26. This discrepancy suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is GuruFocus' estimate of the fair value at which a stock should be traded. It is derived from a unique method that considers historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, the stock of Waters (NYSE:WAT) is estimated to be modestly undervalued. Because Waters is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Waters' Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before investing. Looking at the cash-to-debt ratio and interest coverage can provide a good starting point. Waters has a cash-to-debt ratio of 0.12, worse than 86.34% of 227 companies in the Medical Diagnostics & Research industry. GuruFocus ranks Waters' overall financial strength at 5 out of 10, indicating its financial strength is fair.
Evaluating Profitability and Growth
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. Waters has been profitable for 10 years over the past 10 years. The company had revenues of $3 billion and Earnings Per Share (EPS) of $11.34 in the past 12 months. Its operating margin of 28.48% is better than 94.74% of 228 companies in the Medical Diagnostics & Research industry. GuruFocus ranks Waters' profitability as strong.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Waters is 11.7%, which ranks better than 54.19% of 203 companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth rate is 11.4%, ranking better than 50% of 186 companies in the same industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Waters' ROIC is 25.64, and its cost of capital is 9.51.
Conclusion
In summary, Waters Corp (NYSE:WAT) is estimated to be modestly undervalued. Its financial condition is fair, and its profitability is strong. Its growth ranks better than 50% of 186 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.
This article first appeared on GuruFocus.
