Teledyne (TDY)

Digital imaging and instrumentation provider Teledyne (NYSE:TDY) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 7.4% year on year to $1.45 billion. Its non-GAAP profit of $4.95 per share was 0.6% 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).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Teledyne grew its sales at an excellent 12.5% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Teledyne’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.2% over the last two years was well below its five-year trend.

This quarter, Teledyne reported year-on-year revenue growth of 7.4%, and its $1.45 billion of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 6.9% 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.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

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 42.4% gross margin over the last five years. Said differently, roughly $42.37 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q1, Teledyne produced a 42.7% gross profit margin, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, 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 16.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Teledyne’s operating margin rose by 1.1 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Teledyne generated an operating profit margin of 17.9%, 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 remarkable 12.7% 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.

Although it wasn’t great, Teledyne’s two-year annual EPS growth of 4.5% topped its 2.2% two-year revenue growth.

In Q1, Teledyne reported EPS at $4.95, up from $4.55 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Teledyne’s full-year EPS of $20.14 to grow 10.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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.

Taking a step back, we can see that Teledyne’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Teledyne’s free cash flow clocked in at $224.6 million in Q1, equivalent to a 15.5% margin. The company’s cash profitability regressed as it was 4.9 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 7.7%, 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. On average, Teledyne’s ROIC decreased by 2.5 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Teledyne reported $461.5 million of cash and $2.96 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 $1.54 billion of EBITDA over the last 12 months, we view Teledyne’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $62.5 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. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed and its full-year EPS guidance fell slightly short of Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 1.3% to $455 immediately after reporting.

Updated: May 21, 2025 at 10:59 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Teledyne, you should also grasp the company’s longer-term business quality and valuation.

Teledyne isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its flat organic revenue disappointed. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its diminishing returns show management's prior bets haven't worked out.

Teledyne’s P/E ratio based on the next 12 months is 22x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $557.14 on the company (compared to the current share price of $489.23).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.