The latest earnings update Waters Corporation (NYSE:WAT) released in December 2018 suggested that the business benefited from a substantial tailwind, more than doubling its earnings from the prior year. Today I want to provide a brief commentary on how market analysts perceive Waters's earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Market analysts' prospects for next year seems rather subdued, with earnings growing by a single digit 7.3%. The growth outlook in the following year seems much more optimistic with rates arriving at double digit 10% compared to today’s earnings, and finally hitting US$684m by 2022.
While it’s useful to understand the growth each year relative to today’s level, it may be more valuable to estimate the rate at which the earnings are moving on average every year. The benefit of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Waters's earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I've inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 4.5%. This means that, we can presume Waters will grow its earnings by 4.5% every year for the next couple of years.
For Waters, there are three relevant aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is WAT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WAT is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WAT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.