Pure And Simple: Waters Corp. (WAT)

Impure drugs, tainted foods. Few days go by, it seems, without jarring stories in the news about contamination. From food-safety analysis and environmental testing to drug discovery, manufacturing, and purity testing, Waters Corporation produces instruments used to analyze the chemical and biological composition of materials used in a wide swath of industries. More than 50 years in business, Waters is steeped in scientific discovery. Its founder invented one of the early refractometers, commercialized liquid chromatography, and developed instruments and processes that are ubiquitous in labs today. Currently, the company’s products include liquid chromatography hardware, mass spectronomy systems, and chemistry-related consumables that are used around the world. The wide range of applications makes Waters a relatively diversified company.

Waters has a long record of solid sales growth, strong cash flow, and impressive management. However, with more than 70% of sales overseas, the company has recently shown some weakness due to the difficult economic times and currency weakness abroad. Specifically, the company showed no earnings growth for the first quarter of 2012, and second-quarter earnings were also weaker than expected. Buyers are cautious, particularly in Europe and Asia, where businesses and governments are buying less analytical equipment. In response, Waters is keeping spending levels low, cutting non-crucial travel, and generally hunkering down and waiting. The stock price reflects this glum stance and is trading near its two-year lows. However, there is nothing fundamentally askew at Waters, and so far its diversified customer base is helping the company stay financially strong. We see this as a good time to buy a company that has impressive long-term prospects and relatively low debt, and is poised to profit when its substantial foreign exposure eventually goes up.

Corporate Responsibility

Waters has a sound record for social responsibility across the board, starting with much of its equipment being used for environmental and safety testing. For example, Waters’ ACQUITY Liquid Chromatography system uses fewer chemicals than other options, and it works faster, thereby saving energy. In addition to its products, Waters’ internal environmental management system is broad and effective. It requires suppliers to complete an audit for their own corporate responsibility and uses many LEED environmental practices and materials in its buildings (though as of 2009, it does not have any LEED-certified buildings). The company has granted at least 22 scholarships to students and promotes science education in its local communities. Two women serve on Waters’ board of directors.
Revenues: $1.85 Billion
2013E $5.50
2012E $4.95
2011A $4.69
Projected Annual Growth Rate: 12%
Dividend: N/A
52 Week High-Low: $94.47 – $70.88
Risk: Medium
Website: waters.com