WAT Waters Corporation
A best-in-class chromatography franchise whose GAAP numbers are hidden by the merger; normalized margins, not TTM, determine value.
The story
Waters is the franchise leader in liquid chromatography and mass spectrometry, with a razor-and-blade model where roughly half of revenue comes from recurring consumables and service tied to a large installed base in regulated pharma QA/QC. The 2026 Reverse Morris Trust with BD's Biosciences & Diagnostics roughly doubles its scale into flow cytometry and diagnostics. TTM GAAP figures (7.6% margin, $0.61B D&A) are distorted by partial-year consolidation, deal costs and acquired-intangible amortization, not by weaker economics. It is a mature, high-quality franchise now absorbing a large integration, with GLP-1, PFAS testing and an instrument replacement cycle as tailwinds.
Year-1 growth is mostly the full-year consolidation of the BD businesses, taking TTM $4.64B toward about $6.5B pro forma; after that, growth fades to mid-single digits. Margin recovers over 4 years to 26%, below legacy Waters' 28-30% because the acquired biosciences and diagnostics mix earns less, but well above the depressed TTM GAAP figure. Sales-to-capital of 1.5 is set above the goodwill-inflated reported 1.17, because organic reinvestment is capital-light. The -95% baseline gap comes from feeding transient TTM margins into the model and probably a stale share count (98M is pre-merger; about 160M+ after the RMT). It is not a real mispricing.
Value drivers
| Revenue growth (Y1) | 25.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 8y |
| Target operating margin | 26.0% |
| Years to target margin | 4 |
| Sales-to-capital | 1.50 |
| Beta | 1.00 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 9.6% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 5.97B |
| PV of terminal value | 15.16B |
| Equity value | 19.91B |
| ÷ shares → per share | $202.78 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 5.81B | 25.0% | 12.2% | 603.94M | 774.04M | -170.10M | -155.17M |
| 2 | 7.08B | 21.9% | 16.8% | 1.01B | 848.68M | 164.47M | 136.87M |
| 3 | 8.41B | 18.9% | 21.4% | 1.53B | 889.85M | 643.33M | 488.37M |
| 4 | 9.74B | 15.8% | 26.0% | 2.16B | 885.38M | 1.27B | 879.97M |
| 5 | 10.98B | 12.7% | 26.0% | 2.43B | 825.68M | 1.60B | 1.01B |
| 6 | 12.04B | 9.6% | 26.0% | 2.66B | 705.84M | 1.96B | 1.13B |
| 7 | 12.83B | 6.6% | 26.0% | 2.84B | 527.40M | 2.31B | 1.22B |
| 8 | 13.28B | 3.5% | 26.0% | 2.94B | 299.36M | 2.64B | 1.27B |
Key risks
- Integration of BD Biosciences/Diagnostics slips, or dis-synergies keep margins stuck near low-20s
- Pharma/biotech and China capex weakness plus academic funding cuts depress instrument demand
- Share count and debt data may be stale post-RMT, so per-share value is sensitive to the correct diluted count and assumed BD-related debt
Catalysts
- Delivery of cost and revenue synergies, and a margin reset visible in 2026-27 adjusted results
- LC instrument replacement cycle plus GLP-1 and PFAS testing driving recurring consumables growth