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What’s in the Cards for Waters Corp. (WAT) in Q1 Earnings?

Zacks

Waters Corporation WAT is set to report first-quarter 2017 results, before the opening bell on Apr 25.

Waters Corp. managed to return to its earnings beat trajectory in the fourth-quarter of 2016, after posting in-line earnings in the preceding quarter. Waters had an impressive track of nine back-to-back earnings beats before that.

The company posted a positive earnings surprise of 4.3% in the last reported quarter. Overall, Waters Corp. has an average positive surprise of 3.9% over the trailing four quarters.

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


Factors Influencing this Quarter

Water Corp.’s key strengths include a disciplined management team, dominant position in the biopharma end markets and thriving sales in emerging markets. Global pharmaceuticals business, in particular, is Waters Corp.’s largest single market and was a major profit churner for the Waters Division over the past few quarters. We believe the company’s first-quarter financials will benefit from stable demand from pharmaceutical business, growth in recurring revenue and decent sales in other end-markets.

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 also likely to drive first-quarter top line growth. 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 drive first-quarter sales.

During fourth-quarter 2016, Waters Corp.’s liquid chromatography benefitted from 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 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 soon-to-be-reported quarter.

This apart, economic slowdown in key end markets, including Eastern Europe and the Middle East, pose as headwinds. Moreover, currency translations, which are assumed to reduce 2017 sales growth by about 2% to 3% and EPS growth by about 4%, may weigh down on the about to be reported quarterly performance as well. This apart, high debt levels and R&D expenses may add to Waters Corp.’s woes.

Earnings Whispers

Our proven model does not conclusively show that Waters Corp. will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.33. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Waters Corporation Price and EPS Surprise

Waters Corporation Price and EPS Surprise | Waters Corporation Quote

Zacks Rank: Waters Corp. has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00%, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

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. AAPL has an Earnings ESP of +6.47% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avid Technology, Inc. AVID has an Earnings ESP of +160.00% and a Zacks Rank #2.

Seagate Technology plc STX has an Earnings ESP of +3.77% and carries a Zacks Rank #2.

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