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Waters Corp. (WAT) Q4 Earnings: Will the Stock Disappoint?
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Waters Corporation (WAT - Free Report) is set to report fourth-quarter and full-year 2016 earnings results, before the opening bell on Jan 24.
Breaking its impressive streak of nine back-to-back earnings beats, Waters Corp. had reported in-line earnings in its third-quarter 2016 results. Overall, the company has an average positive surprise of 3.0%, with three beats over the trailing four quarters.
Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
Weakness in academic and government demand is expected to play a major spoilsport for Waters Corp.’s fourth-quarter results. Unfavorable order timing and volatility associated with the instrument-heavy business have been hampering performance of the academic and the government businesses. Softness in key end markets, including Japan, Europe and the U.S., is proving to be a major drag on these business lines.
In addition, a sluggish industrial segment has been lingering longer than anticipated, hurting the company’s prospects, in turn. Global weakness in the chemical industry is likely to restrict the sales of both TA Instruments and Waters’ product lines during the fourth quarter, thus adding to the company’s woes.
Also, high R&D expenses over the last few years have been hurting the company’s financials. In third-quarter 2016, R&D expenses (including new product development expenses and incremental investment outlay) were up roughly 8%, on a constant currency basis, over the previous-year quarter. The higher outlay, although beneficial in the long run, will likely flare up expenses and affect immediate profits for the soon-to-be-reported quarter.
This apart, debt levels and the consequent interest expenses remain a burden due to its recent acquisitions. Moreover, given that Waters Corp. generates a substantial portion of its revenues from the non-U.S. markets, currency volatility is also estimated to thwart top-line growth to some extent.
Despite these challenges, pharmaceuticals business – the company’s major revenue driver – is likely to supplement revenue growth for the fourth quarter. Waters Corp.’s robust product portfolio and growing adoption of the previously launched products, including ACQUITY Arc System, Vion IMS QTof Mass Spectrometer and UNIFI Scientific Information System Software, are also projected to rake in profits.
Earnings Whispers
Our proven model does not conclusively show that Waters Corp. is likely to beat the Zacks Consensus Estimate 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. Unfortunately, that is not the case here as elaborated below.
Zacks ESP:The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -1.41% for Waters Corp. as the Most Accurate estimate is pegged $2.10, while the consensus estimate is pegged higher at $2.13. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Waters Corp. has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the 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:
Applied Materials, Inc. (AMAT - Free Report) has an Earnings ESP of +6.1% and a Zacks Rank #1.
Microsoft Corporation (MSFT - Free Report) has an Earnings ESP of +1.3% and a Zacks Rank #2.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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Waters Corp. (WAT) Q4 Earnings: Will the Stock Disappoint?
Waters Corporation (WAT - Free Report) is set to report fourth-quarter and full-year 2016 earnings results, before the opening bell on Jan 24.
Breaking its impressive streak of nine back-to-back earnings beats, Waters Corp. had reported in-line earnings in its third-quarter 2016 results. Overall, the company has an average positive surprise of 3.0%, with three beats over the trailing four quarters.
Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
Weakness in academic and government demand is expected to play a major spoilsport for Waters Corp.’s fourth-quarter results. Unfavorable order timing and volatility associated with the instrument-heavy business have been hampering performance of the academic and the government businesses. Softness in key end markets, including Japan, Europe and the U.S., is proving to be a major drag on these business lines.
In addition, a sluggish industrial segment has been lingering longer than anticipated, hurting the company’s prospects, in turn. Global weakness in the chemical industry is likely to restrict the sales of both TA Instruments and Waters’ product lines during the fourth quarter, thus adding to the company’s woes.
Waters Corp. Price and EPS Surprise
Waters Corp. Price and EPS Surprise | Waters Corp. Quote
Also, high R&D expenses over the last few years have been hurting the company’s financials. In third-quarter 2016, R&D expenses (including new product development expenses and incremental investment outlay) were up roughly 8%, on a constant currency basis, over the previous-year quarter. The higher outlay, although beneficial in the long run, will likely flare up expenses and affect immediate profits for the soon-to-be-reported quarter.
This apart, debt levels and the consequent interest expenses remain a burden due to its recent acquisitions. Moreover, given that Waters Corp. generates a substantial portion of its revenues from the non-U.S. markets, currency volatility is also estimated to thwart top-line growth to some extent.
Despite these challenges, pharmaceuticals business – the company’s major revenue driver – is likely to supplement revenue growth for the fourth quarter. Waters Corp.’s robust product portfolio and growing adoption of the previously launched products, including ACQUITY Arc System, Vion IMS QTof Mass Spectrometer and UNIFI Scientific Information System Software, are also projected to rake in profits.
Earnings Whispers
Our proven model does not conclusively show that Waters Corp. is likely to beat the Zacks Consensus Estimate 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. Unfortunately, that is not the case here as elaborated below.
Zacks ESP:The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -1.41% for Waters Corp. as the Most Accurate estimate is pegged $2.10, while the consensus estimate is pegged higher at $2.13. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Waters Corp. has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the 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:
Applied Optoelectronics, Inc. (AAOI - Free Report) has an Earnings ESP of +15.9% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Materials, Inc. (AMAT - Free Report) has an Earnings ESP of +6.1% and a Zacks Rank #1.
Microsoft Corporation (MSFT - Free Report) has an Earnings ESP of +1.3% and a Zacks Rank #2.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>