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Why Waters Corp (WAT) Looks Set To Beat On Q3 Earnings

Published 10/19/2017, 12:20 AM
Updated 07/09/2023, 06:31 AM

Waters Corporation (NYSE:WAT) is set to report third-quarter 2017 results, before the opening bell on Oct 24.

The company has a brilliant earnings beat streak, spanning 12 quarters of positive earnings surprises, which the company broke with in-line earnings in one of the quarters last year. Waters Corp.hasposted a positive earnings surprise of 2.3% in the last reported quarter. Overall, Waters Corp. has an average positive surprise of 4.1% for the trailing four quarters, having beaten estimates thrice.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Waters Corp. has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Waters Corp.has an Earnings ESP of +0.77%, as the Most Accurate estimate of $1.75 is pegged above the Zacks Consensus Estimate of $1.74. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors to Drive Better-than-Expected Results

Waters Corp.’s key strengths include a dominant position in the biopharma end markets and thriving sales in emerging markets. Global pharmaceuticals business, in particular, is the company’s largest single market and has been a major profit churner for the Waters Division over the past few quarters. We believe the company’s third-quarter financials will benefit from steady demand from the pharmaceutical business, growth in recurring revenues and modest recovery of industrial markets.

Waters Corporation Price, Consensus and EPS Surprise

Moreover, the company’s Industrial business, which has gained momentum in the past few quarters due to increasing demand for improved food quality and safety testing, is likely to drive the quarter’s top line. In addition, demand for research intensive products, especially the company’s mass spectrometry solutions and liquid chromatography, has been on an uptrend lately and is likely to bolster the third-quarter sales.

During the last reported quarter, Waters Corp.’s liquid chromatography benefited from the ACQUITY Arc System, while mass spectrometry sales grew on the back of QDa and Xevo family of Tandem Quadrupole. We believe robust market traction of the ACQUITY, CORTECS and Xevo line of products will supplement the top-line performance of the soon-to-be-reported quarter.

Despite these positives, sluggishness in the company’s academic and government businesses are likely to restrict growth to some extent. Of late, unfavorable order timing and volatility associated with instrument-heavy business have played a spoilsport for the academic and government businesses. Also, weakness in the chemical industry on a global scale is likely to dampen sales performance for the to-be-reported quarter.

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:

Terex Corporation (NYSE:TEX) , with an Earnings ESP of +5.04% and a Zacks Rank #2, is expected to release quarterly numbers around Oct 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Scorpio Bulkers Inc. (NYSE:SALT) , with an Earnings ESP of +13.24% and a Zacks Rank #2, is slated to report results on Oct 30.

Rockwell Collins, Inc. (NYSE:COL) , with an Earnings ESP of +6.79% and a Zacks Rank #3, is expected to report quarterly figures around Oct 27.

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Scorpio Bulkers Inc. (SALT): Free Stock Analysis Report

Rockwell Collins, Inc. (COL): Free Stock Analysis Report

Waters Corporation (WAT): Free Stock Analysis Report

Terex Corporation (TEX): Free Stock Analysis Report

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