Waters Corporation (WAT)

Scientific instruments company Waters Corporation (NYSE:WAT) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 6.8% year on year to $932.4 million. The company expects next quarter’s revenue to be around $1.20 billion, coming in 64.5% above analysts’ estimates. Its non-GAAP profit of $4.53 per share was in line with 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 $3.17 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 can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Waters Corporation’s sales grew at a mediocre 6% compounded annual growth rate over the last five years. 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 3.5% 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 2.1% 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 grew its revenue by 6.8% year on year, and its $932.4 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 82% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.5% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and implies its newer products and services will catalyze better top-line performance.

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Waters Corporation’s adjusted operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 30.6% over the last five years. This profitability was elite for a healthcare business thanks to its efficient cost structure and economies of scale.

Analyzing the trend in its profitability, Waters Corporation’s adjusted operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Waters Corporation generated an adjusted operating margin profit margin of 35.2%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Waters Corporation’s solid 7.7% 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 Q4, Waters Corporation reported adjusted EPS of $4.53, up from $4.10 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Waters Corporation’s full-year EPS of $13.13 to grow 9.1%.

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 17.7% 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 4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Waters Corporation’s free cash flow clocked in at $125.6 million in Q4, equivalent to a 13.5% margin. The company’s cash profitability regressed as it was 8.1 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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 37.2%, 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. Over the last few years, Waters Corporation’s ROIC has unfortunately decreased significantly. 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 $587.8 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 $1.12 billion of EBITDA over the last 12 months, we view Waters Corporation’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $33.54 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 were impressed by Waters Corporation’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also happy its full-year EPS guidance narrowly outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Overall, this quarter could have been better. The stock remained flat at $329.54 immediately following the results.

Updated: February 10, 2026 at 11:13 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.

When it comes to Waters Corporation’s business quality, there are some positives, but it ultimately falls short. 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 23.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $402.71 on the company (compared to the current share price of $328.94).