Waters Corp. (WAT) Likely To Beat Q3 Earnings: Here's Why

We expect Waters Corporation (NYSE:WAT) to beat earnings expectations when it reports third-quarter 2016 earnings results before the opening bell on Oct 25.

In the last quarter, Waters Corp. had posted a positive earnings surprise of almost 9.0%. The company boasts a solid earnings track record, having beaten estimates in each of the trailing four quarters. The average earnings surprise over the last four quarters is a positive 3.5%.

We expect the company to post an earnings beat in the soon-to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model shows that Waters Corp. is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.64%. This is very meaningful and a major indicator of a likely earnings surprise.

Zacks Rank: Waters Corp. carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 have a significantly higher chances of beating earnings estimates. Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Waters Corp.’s Zacks Rank #3 and ESP of +0.64% makes us confident of an earnings beat in the upcoming report.

Growth Factors in Third Quarter

Waters Corp.’s pharmaceuticals business, the company’s major revenue driver, is likely to act as the strongest catalyst for third-quarter results as well. During second-quarter 2016, the company’s global pharmaceuticals business sales had topped by 12% on a year-over-year basis. Sales were driven by striking growth in core small molecule QA/QC workflows and in large molecule R&D oriented applications as well.

Waters Corp.’s solid market presence in both high-performance liquid chromatography market and mass spectrometry markets, strength in regulated testing, non-discretionary product demand are its staple growth drivers. These factors are expected to bolster revenues for the to-be-reported quarter. We believe that thriving life sciences and analytical instrument markets, accelerated drug approvals by the FDA and favorable funding environment bode well for the company’s third-quarter financial performance.

The company’s robust product portfolio supplements its strength. Few of Waters Corp.’s previously launched products, including ACQUITY Arc System, Vion IMS QTof Mass Spectrometer and UNIFI Scientific Information System Software, have been raking in huge profits for the company.

During the third quarter, the company expanded its Microscale Separations Science Portfolio, with the launch of Waters 300-micron i.d. microfluidic device, and created a new integrated database, called RapiFluor-MS Glycan GU Scientific Library.

We believe that the newly unveiled products, along with old ones, will act as key profit churners for the quarter to be reported.

Further, we perceive that the company’s recently completed acquisitions will also supplement its core businesses. For instance, Waters Corp.’s TA division has been benefitting significantly from previous buyouts. This, in turn, is boosting both top- and bottom-line growth. We anticipate other acquisitions, including the ElectroForce Group and Rapid Evaporative Ionization Mass Spectrometry (REIMS) technology, will also act as tailwinds for the quarter to be reported.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Apple Inc. (NASDAQ:AAPL) has an Earnings ESP of +1.21% and a Zacks Rank #2. The company is scheduled to report results on Oct 25.

Littelfuse Inc. (NASDAQ:LFUS) has an Earnings ESP of +1.38% and carries a Zacks Rank #2. The company is slated to release results on Nov 3.

Vocera Communications, Inc. (NYSE:VCRA) has an Earnings ESP of +10.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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