Waters Corporation (WAT): A Bull Case Theory

We came across a bullish thesis on Waters Corporation on The Wealth Dynasty Report’s Substack. In this article, we will summarize the bulls’ thesis on WAT. Waters Corporation's share was trading at $370.72 as of January 30th. WAT’s trailing and forward P/E were 34.48 and 26.39 respectively according to Yahoo Finance.

Waters Corporation is a leading provider of high-tech laboratory equipment, serving pharmaceutical, industrial, and academic clients worldwide. The company’s product portfolio includes liquid chromatography systems, mass spectrometers, and associated consumables, supported by recurring service contracts that generate predictable, sticky revenue.

About 58% of sales come from pharmaceutical customers, 31% from industrial clients, and 11% from universities and government labs. Waters operates globally, with strong growth in India offset by double-digit declines in China, and has recently expanded manufacturing capacity for LC columns in Taunton.

In 2023, Waters acquired Wyatt Technology for $1.3 billion in cash, broadening its capabilities in large molecule applications but increasing debt levels. Full-year 2024 revenue remained flat at $2.96 billion, with net income slightly down to $638 million and EPS at $10.71. Operating cash flow was robust at $762 million, generating $744 million in free cash flow, providing ample liquidity to service debt and support operations.

Margins are healthy, with adjusted operating margins around 31%, though foreign exchange headwinds and competition continue to pressure results. The company maintains disciplined capital allocation through selective stock buybacks and careful working capital management, though cash reserves are not excessive.

Waters faces near-term risks including China’s slowdown, interest rate pressures on $1.6 billion of debt, currency fluctuations, and competition from peers such as Agilent, Thermo Fisher, and Danaher. Growth has stalled, and while recurring revenue and emerging market expansion provide some upside, the market currently prices in perfection at a P/E of 35 and a free cash flow yield of only 3.3%.

The upcoming merger with BD Biosciences could add value, but integration risk exists. Given the flat top-line growth and elevated valuation, the prudent investment stance is to hold existing positions and wait for a more attractive entry point before buying.

Previously, we covered a bullish thesis on Thermo Fisher Scientific Inc. (TMO) by Kontra in October 2024, highlighting its durable growth and leading positions in life sciences tools. TMO’s stock has depreciated by approximately 3.83% since coverage due to steady execution. The Wealth Dynasty Report offers a similar view on Waters Corporation (WAT) but stresses the Wyatt acquisition, higher debt, and flat revenue, advising buying at better entry point.

Waters Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held WAT at the end of the third quarter which was 37 in the previous quarter. While we acknowledge the potential of WAT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.