Waters Corp. Rides High On Thriving Pharmaceutical Business

Last month, analytical laboratory instrument and software provider, Waters Corporation (NYSE:WAT) posted first-quarter 2017 results, getting back on the earnings beat trajectory. The company has a solid earnings surprise history. In the last 10 quarters, it beat estimates nine times, reporting in-line earnings in one.

Water Corp.’s bright pharmaceutical business ended 2016 on a healthy note. We believe that the company is set to continue its momentum in 2017. Its shares have appreciated 30.7% over the past six months, outperforming the Zacks categorized Instruments-Scientific industry’s average gain of 27.5%.

Recently, the company witnessed solid activity on the estimate revision front, indicating bullish sentiment. In the past one month, the Zacks Consensus Estimate for full-year 2017 earnings has trended up from $7.05 to $7.30, on the back of twelve upward estimate revisions versus zero downward. Let’s take a better look at the long-term growth drivers of the Zacks Rank #2 (Buy) company.

Growth Drivers

In the past few quarters, the company’s bottom line has benefitted from disciplined spending and careful use of capital. Waters Corp.’s key strengths include leading positions in the pharmaceutical market, broad global customer base and an impressive lineup of products.

For 2017, Waters Corp. remains confident that stable demand from the pharmaceutical business, modest recovery of industrial markets and growth in recurring revenue will accelerate its growth momentum. Based on these dynamics, the company is expecting mid-single-digit constant currency sales increase in 2017.

The company has delivered strong organic growth over the past few quarters supported by continuous operational improvement and ever-judicious use of shareholder capital. Waters Corp. has a strong presence in the chromatography instrument and pharmaceuticals markets, and expects to reap enhanced profit from them, going forward.

Positive macro trends, including rising global regulatory standards, increasing access of patients to prescription drugs, growing testing needs of newer biological drugs and ever-increasing complexity in molecular structure, are acting as tailwinds for the pharmaceutical business.

Moreover, Industrial business of the company is proving to be a major profit churner on the back of increasing regulation around food safety and quality, strict conditions for food testing, and environmental and fine chemical applications. In terms of geography, the company anticipates sales to grow steadily in the U.S. for full-year 2017, on the back of thriving U.S. pharmaceutical and industrial markets. Also, impressive growth of recurring revenues is expected to fuel growth in Asia.

Other Stocks to Consider

Some other stocks in the broader sector include Cohu, Inc. (NASDAQ:COHU) , Motorola Solutions, Inc. (NYSE:MSI) , and NCR Corporation (NYSE:NCR) . While Cohu sport a Zacks Rank #1 (Strong Buy), Motorola Solutions and NCR Corporation hold the same Zacks Rank as Waters Corp. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cohu has a striking earnings surprise history, with an average positive surprise of 121.2% over the trailing four quarters, beating estimates all through.

Motorola has a striking earnings surprise history for the last four quarters, having beaten estimates all through, for an impressive average beat of 16.6%.

NCR also has an excellent earnings surprise history, with an average beat of 11% for the trailing four quarters, beating estimates all through.

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