VLTO Veralto
High-quality recurring water franchise, but $96 prices in growth and margins the fundamentals don't support.
The story
Veralto is Danaher's water-quality and product-identification spin-off. About 60% of its revenue is recurring (consumables, reagents, service, and marking inks) and runs through Hach, Trojan UV, Videojet and X-Rite, which hold leading niche positions backed by the Danaher Business System. It is a mature, cash-generative compounder with low capital intensity and mid-single-digit organic growth, plus optionality from bolt-on M&A. It is not a high-growth franchise.
Drivers are unchanged except year-1 growth, which moves from 5.0% to 5.5% (a 10% relative move) because TTM revenue of $5.70B shows modest acceleration. Margins have stayed flat near 23%, so the 23.5% target stays: it is sustainable DBS-driven economics, not a peak. Sales-to-capital stays at 1.0 because the goodwill-heavy base and bolt-on M&A absorb capital, and a 10-year horizon reflects a real but not exceptional moat in recurring water and marking consumables.
Value drivers
| Revenue growth (Y1) | 5.5% |
| Terminal growth | 2.5% |
| Forecast horizon | 10y |
| Target operating margin | 23.5% |
| Years to target margin | 5 |
| Sales-to-capital | 1.00 |
| Beta | 1.08 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.5% |
| Terminal WACC | 9.2% |
Valuation bridge
| PV of explicit FCFF | 6.57B |
| PV of terminal value | 8.22B |
| Equity value | 14.01B |
| ÷ shares → per share | $57.45 |
News
neutral -0.10 · 8 articles
- Q2 Earnings Outperformers: Veralto (NYSE:VLTO) And The Rest Of The Environmental and Facilities Services Stocks
- VLTO Stock Rises 13.2% in Three Months: Here's What You Should Know
- 2 Reasons to Sell VLTO and 1 Stock to Buy Instead
- CLH Shares Rise 10.4% in 6 Months: Here's What You Should Know
- 1 Mid-Cap Stock on Our Buy List and 2 We Avoid
- Veralto (VLTO) Climate Targets Win SBTi Validation
- 1 of Wall Street’s Favorite Stocks on Our Watchlist and 2 Facing Challenges
- Veralto Stock: Is VLTO Underperforming the Industrial Sector?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 6.01B | 5.5% | 23.0% | 1.11B | 313.28M | 792.99M | 724.23M |
| 2 | 6.32B | 5.2% | 23.1% | 1.17B | 310.48M | 859.62M | 717.01M |
| 3 | 6.63B | 4.8% | 23.2% | 1.23B | 305.46M | 928.21M | 707.08M |
| 4 | 6.92B | 4.5% | 23.4% | 1.30B | 298.13M | 998.36M | 694.57M |
| 5 | 7.21B | 4.2% | 23.5% | 1.36B | 288.47M | 1.07B | 679.65M |
| 6 | 7.49B | 3.8% | 23.5% | 1.41B | 276.45M | 1.13B | 657.91M |
| 7 | 7.75B | 3.5% | 23.5% | 1.46B | 262.09M | 1.20B | 634.63M |
| 8 | 8.00B | 3.2% | 23.5% | 1.51B | 245.43M | 1.26B | 610.03M |
| 9 | 8.22B | 2.8% | 23.5% | 1.55B | 226.55M | 1.32B | 584.34M |
| 10 | 8.43B | 2.5% | 23.5% | 1.59B | 205.56M | 1.38B | 557.78M |
Key risks
- The valuation already assumes sustained premium multiples, so any growth slowdown in municipal or industrial water spending could compress the stock sharply
- M&A capital deployment at high prices could dilute returns on capital
- Product-quality segment (Videojet/X-Rite) is exposed to industrial and packaging cyclicality and pricing pressure
Catalysts
- Large accretive acquisition deploying the ~$2B cash pile at sensible returns
- PFAS and water-regulation tailwinds lifting Hach/Trojan organic growth toward high single digits