Waters Corporation (WAT)

Scientific instruments company Waters Corporation (NYSE:WAT) announced better-than-expected revenue in Q3 CY2025, with sales up 8% year on year to $799.9 million. The company expects next quarter’s revenue to be around $926.8 million, close to analysts’ estimates. Its GAAP profit of $2.50 per share was 14.7% below analysts’ consensus estimates.

Company Overview

Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE:WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.

The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.

Waters' main competitors in the analytical instruments market include Agilent Technologies, Shimadzu Corporation, Bruker Corporation, Danaher Corporation, and Thermo Fisher Scientific. In the thermal analysis segment, TA Instruments competes with Perkin Elmer, NETZSCH-Geraetebau, Malvern PANalytical, and Anton-Paar.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $3.11 billion in revenue over the past 12 months, Waters Corporation has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Waters Corporation’s 6.2% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Waters Corporation’s recent performance shows its demand has slowed as its annualized revenue growth of 1.8% over the last two years was below its five-year trend.

Waters Corporation also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Waters Corporation’s organic revenue averaged 1.6% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Waters Corporation reported year-on-year revenue growth of 8%, and its $799.9 million of revenue exceeded Wall Street’s estimates by 2.4%. Company management is currently guiding for a 6.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.8% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will fuel better top-line performance.

Waters Corporation has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 28.1%.

Looking at the trend in its profitability, Waters Corporation’s operating margin decreased by 3.5 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 1.5 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, Waters Corporation generated an operating margin profit margin of 24%, down 4.5 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

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.

Waters Corporation’s decent 6.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Waters Corporation reported EPS of $2.50, down from $2.71 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Waters Corporation’s full-year EPS of $10.88 to grow 17.7%.

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.

Waters Corporation has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 18.5% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Waters Corporation’s margin dropped by 3.7 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Waters Corporation’s free cash flow clocked in at $161.9 million in Q3, equivalent to a 20.2% margin. The company’s cash profitability regressed as it was 3.9 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

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).

Although Waters Corporation hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 37.1%, splendid for a healthcare business.

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, Waters Corporation’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Waters Corporation reported $459.1 million of cash and $1.41 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 $1.11 billion of EBITDA over the last 12 months, we view Waters Corporation’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $12.74 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.

We enjoyed seeing Waters Corporation beat analysts’ organic revenue expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $344.95 immediately following the results.

Updated: December 3, 2025 at 11:15 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Waters Corporation.

Waters Corporation isn’t a bad business, but we have other favorites. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while Waters Corporation’s diminishing returns show management's prior bets haven't worked out, its stellar ROIC suggests it has been a well-run company historically.

Waters Corporation’s P/E ratio based on the next 12 months is 28.6x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $388.58 on the company (compared to the current share price of $398.45).