We recently maintained a Neutral recommendation on Milford, Massachusetts-based Waters Corporation (WAT).
Waters, an analytical instrument manufacturer, designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography, ultra performance liquid chromatography (LC) and mass spectrometry (MS) instrument systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans.
Through its TA Division, the company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments. Waters Corporation is also a developer and supplier of software-based products that interface with the company’s instruments as well as other manufacturers’ instruments.
The company has a strong presence in the chromatography instrument market, which is expected to grow annually over the longer term. The company is currently one of the top three players in the mass spectrometry market. It is expected to experience a sustained healthy performance in its organic sales growth over the next few years based on strong customer demand in mass spectrometry and HPLC. Waters continues to see relevant stability in its end markets and continued momentum in the acceptance of new products.
Recently, the company came out with its second-quarter 2011 earnings result, reporting earnings per share from continuing operation of $1.07, below the Zacks Consensus Estimate of $1.14. Earnings in the quarter increased from $0.90 in the second quarter of 2010.
Waters Division performed well in the quarter. The division’s sales to the pharmaceutical end market were in line with the division's overall growth rate, with significant strength seen in Western Europe, Latin America and India. Applications within pharma that are driving growth include Regulated Bioanalysis, biological pharmaceutical development and QC testing.
Lower spending by global government and university impacted sales in the quarter. Sales to industrial chemical customers were geographically different with stronger growth in the developing countries than that in Western Europe and the U.S.
The TA division witnessed a double-digit sales growth in the quarter. Sales growth for TA was geographically balanced and included revenues associated with shipment of the new discovery DSC instrument.
However, second-quarter top and bottom-line results were slightly below the expectations of the company as it experienced lower business growth in US Government academic market performance, which also suffered during the quarter due to a difficult funding environment. Moving ahead in 2011, the company continues to see relevant stability in its end markets and continued momentum in the acceptance of new products.
Thus, we expect the company to perform in line with the market and hence maintained a Neutral recommendation.
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