EUR 850.00 For Business Accounts Only

Morningstar | WAT Updated Star Rating from 21 Mar 2019

Wide-moat Waters ended the year with a solid performance, in our view, and we may modestly increase our fair value estimate as we adjust some of our assumptions. Revenue and adjusted earnings per share growth of 5% and 14%, respectively, in the fourth quarter both slightly surpassed our expectations. Even when accounting for as much as $2 billion in share repurchases for 2019, management’s outlook for adjusted EPS of $9.20-$9.45 for the year exceeds our initial estimate thanks in part to greater operating leverage.

Waters’ liquid chromatography-mass spectrometry segment posted 5% constant-currency growth, which is an improvement from performance in previous quarters this year thanks to favorable conditions in the Americas and Asia. Meanwhile, the thermal analysis segment overcame the weakness seen in the third quarter with 7% constant currency growth in the final quarter of the year. Management said demand in Europe and India remains a challenge, but we think this quarter’s performance combined with stable underlying market conditions and new product launches can sustain comfortable mid-single-digit growth. Management noted a consistent improvement in high-resolution mass specs, which has been an area of weakness for the firm through much of early 2018.

We’re encouraged by Waters’ 7% constant-currency revenue growth in the biopharma market, where the company has recently lagged close peers, in our view. We plan to slightly boost our near-term outlook for this segment following this quarter's better-than-expected result. We think new product launches, such as the LC-MS BioAccord System announced this week, can help support growth in the biopharma segment, which is Waters’ most critical customer category.

Waters’ other market segments posted fourth-quarter results mostly in line with our expectations. Industrial and applied segment sales increased 2% on a constant-currency basis, which is consistent with performance throughout 2018. Academic and government sales growth slowed to 3%, which management attributed to weakness in biomedical research. We don’t envision a dramatic shift in our growth expectations for these segments, especially as recent government and academic spending has been above our expectations since earlier this year. We still consider these markets to possess low- to mid-single-digit growth potential over the long term even as Brexit, the U.S. government shutdown, and overall slowing growth concerns represent potential near-term headwinds in these more macroeconomically sensitive customer groups.