Teledyne (TDY)

Digital imaging and instrumentation provider Teledyne (NYSE:TDY) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.7% year on year to $1.54 billion. Its non-GAAP profit of $5.57 per share was 1.8% above analysts’ consensus estimates.

Company Overview

Playing a role in mapping the ocean floor as we know it today, Teledyne (NYSE:TDY) offers digital imaging and instrumentation products for various industries.

Measurement and inspection instrument companies may enjoy more steady demand because products such as water meters are non-discretionary and mandated for replacement at predictable intervals. In the last decade, digitization and data collection have driven innovation in the space, leading to incremental sales. But like the broader industrials sector, measurement and inspection instrument companies are at the whim of economic cycles. Interest rates, for example, can greatly impact civil, commercial, and residential construction projects that drive demand.

Competitors offering similar products include L3Harris (NYSE:LHX) and Garmin (NASDAQ:GRMN).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Teledyne’s 14.1% annualized revenue growth over the last five years was exceptional. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Teledyne’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.3% over the last two years was well below its five-year trend. We also note many other Inspection Instruments businesses have faced declining sales because of cyclical headwinds. While Teledyne grew slower than we’d like, it did do better than its peers.

This quarter, Teledyne reported year-on-year revenue growth of 6.7%, and its $1.54 billion of revenue exceeded Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Teledyne has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 42.6% gross margin over the last five years. Said differently, roughly $42.63 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, Teledyne’s gross profit margin was 42.8%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Teledyne has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Teledyne’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Teledyne generated an operating margin profit margin of 18.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Teledyne’s spectacular 15.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Teledyne, its two-year annual EPS growth of 5.2% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Teledyne reported adjusted EPS of $5.57, up from $5.10 in the same quarter last year. This print beat analysts’ estimates by 1.8%. Over the next 12 months, Wall Street expects Teledyne’s full-year EPS of $21.24 to grow 8.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Teledyne has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 14.6% over the last five years.

Teledyne’s free cash flow clocked in at $313.9 million in Q3, equivalent to a 20.4% margin. This result was good as its margin was 4.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Teledyne historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Teledyne’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Teledyne reported $528.6 million of cash and $2.53 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.62 billion of EBITDA over the last 12 months, we view Teledyne’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $61.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Teledyne narrowly top analysts’ revenue expectations this quarter. On the other hand, its EPS guidance for next quarter slightly missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $572.15 immediately after reporting.

Updated: December 4, 2025 at 10:18 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Teledyne has some positive attributes, but it isn’t one of our picks. First off, its revenue growth was exceptional over the last five years. And while Teledyne’s organic revenue growth has disappointed, its impressive operating margins show it has a highly efficient business model.

Teledyne’s P/E ratio based on the next 12 months is 21.9x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $623.09 on the company (compared to the current share price of $524.42).