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We recently maintained a Neutral recommendation on Waters Corporation (WAT - Analyst Report).

Waters Corporation, an analytical instrument manufacturer, designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography, ultra performance liquid chromatography (LC) and mass spectrometry (MS) instrument systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that can be integrated and used along with other analytical instruments. Through its TA Division, the company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments. Waters Corporation is also a developer and supplier of software-based products that interface with the company’s instruments as well as other manufacturers’ instruments.

Waters Corporation’s products are used by pharmaceutical, life science, biochemical, industrial, academic and government customers, working in research and development, quality assurance and other laboratory applications.

On January 24, 2012, the company came out with its fourth-quarter 2011 adjusted earnings per share of $1.56, above the Zacks Consensus Estimate of $1.50. Earnings in the quarter increased from $1.38 in the fourth quarter of 2010.

For 2011, adjusted earnings per share came in at $4.81, above the Zacks Consensus Estimate of $4.75 and prior-year earnings of $4.09.

On the top line, Waters reported total revenue of $521 million for the fourth quarter, up 8% year over year. Besides, foreign currency was neutral to sales. The company achieved double-digit revenue growth in 2011, with its revenue for the year increasing by 13% to $1.85 billion.

Waters Division performed well in the quarter and TA division witnessed a double-digit sales growth. Sales growth for TA was geographically balanced and benefited from sales of new discovery DSC and Discovery Hybrid Rheometer.

The company continues to see relevant stability in its end markets and continued momentum in the acceptance of new products. Rise in sales to pharmaceutical customers is also a benefactor for the company. Further, Biopharmaceutical development and QC testing are facilitating pharma growth.

With increased systems offerings of Discovery-branded instruments, TA division is expected to expand in 2012 and beyond. The division will also benefit from expanding its applications footprint into biological and high temperature material testing opportunities.

Waters’ strong business activities benefitaed its result in the quarter, outperforming the company’s as well as the Zacks Consensus Estimates. Contributions from new products uptake and rise in pharmaceutical demand were prime benefactors. The company is confident of continuing its superior performance in 2012.

However, the prevailing macroeconomic uncertainties are a matter of concern, including concerns regarding the health of the European markets and global governmental austerity programs. These uncertainties blur the company’s growth expectations for 2012 in relation to its performance during the past two years. Major competitors of Waters are Agilent Technologies Inc. (A - Analyst Report), Life Technologies Corporation and Thermo Fisher Scientific Inc. (TMO - Analyst Report).

We currently maintain our Neutral rating on Waters, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months

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