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Waters Corp (WAT) Poised to Grow on Positive Industry Trends

Zacks Equity Research

Waters Corporation WAT had an impressive start to 2017, appreciating 15.7% and surpassing the Zacks classified Instrument-Scientific industry's average gain of 12.2%. Waters Corp. believes that 2017 will be a good year with strong end markets, stable demand from pharmaceutical business and growth in recurring revenue stream.

We believe the stock can be a solid pick for long-term investment. Here’s why:

The Growth Drivers

Waters Corp. enjoys a robust presence in the chromatography instrument and pharmaceuticals markets. The company is a leader in the high-performance liquid chromatography market and a frontrunner in mass spectrometry markets. Its strong business model, disciplined management team and solid sales in the emerging markets are expected to drive profits in the near term. 

Positive macro trends, including rising global regulatory standards, increasing access of patients to prescription drugs, growing testing needs of newer biological drugs and ever-increasing complexity in molecular structure, are acting as tailwinds for the pharmaceutical business. Moreover, Industrial business of the company is proving to be a major profit churner on the back of increasing demand for improved food quality and safety testing, and fine chemical applications.

Further, the government and academic markets are experiencing a rebound after a period of brief weakness, thus adding to the company’s strength. New regulatory requirements by China’s Food and Drug Administration are driving sales in China. The company also believes its industry leading “Empower chromatography data systems” positions it well to reap the benefits from stringent regulatory standards.

Upward Estimates Revision

The company has witnessed an impressive growth rate of 7.5% compared with the 1.9% mark of the industry over the past five years. With a string of earnings beats over the past 11 quarters, Water Corp.’s surprise history is quite spectacular. During the last reported quarter, the company’s adjusted earnings of $2.21 per share trumped the Zacks Consensus Estimate of $2.12 by 4.3%.

Encouragingly, analysts have become bullish on this Zacks Rank #3 (Hold) company over the past month, as the Zacks Consensus Estimate for fiscal 2017 inched up from $7.01 to $7.02, on the back of five upward estimate revisions.

Stocks to Consider

Some better-ranked stocks in the same space include Sierra Wireless, Inc. SWIR, Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT. While Sierra Wireless sports a Zacks Rank #1 (Strong Buy), Motorola and Ubiquiti hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sierra Wireless has an outstanding average positive earnings surprise of 179.6% for the trailing four quarters, thanks to three huge earnings beats.

Motorola has a striking earnings surprise history for the trailing four quarters, having beaten estimates all through, for an impressive average beat of 16.4%.

Ubiquiti Networks has managed to beat earnings estimates thrice over the trailing four quarters. It has an average positive surprise of 14.3%.

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Motorola Solutions, Inc. (MSI): Free Stock Analysis Report
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