September 2023
Founded in 1958, Waters Corporation (“Waters”) is an analytical laboratory instrument and software company headquartered in Milford, Massachusetts. Its scientific tools are used for liquid chromatography, mass spectrometry and thermal analysis. The company serves a variety of end markets, but the majority of its revenue is derived from new equipment, disposables and service contract sales to life sciences customers for drug discovery, drug development and manufacturing quality control.
Waters benefits from a large and stable installed base of equipment, particularly in its liquid chromatography business. The company’s tools are an integral part of the quality assurance process for pharmaceutical drug manufacturing, and it is common for Waters’ products to be used in all phases of a drug’s lifecycle including discovery, development and quality control. In fact, because measurement consistency is critical to accurate quality controls, the company’s tools are often used even when a drug loses exclusivity and production is transitioned to generic drug manufacturers.
We expect Waters to grow and create business value due to end market growth, new product development, and improved attachment rates for consumables and service contracts. New product examples include faster and more accurate liquid chromatography and mass spectrometry tools. Additionally, we expect Waters thermal analysis tools to benefit from growth in the electric vehicle market.
Our investment thesis incorporates concerns including volatile short-term financial results due to the timing impact of high-priced new equipment sales, a less favorable competitive position for large molecule (biologic) drug development relative to small molecule (chemically synthesized compound) drugs, and near-term uncertainty associated with the recovery of the Chinese pharmaceutical market.
Waters demonstrates many of the Quality Growth attributes we favor including competitive advantages, high returns on capital and consistent free cash flow generation. We are pleased to add it to the Global Quality Growth Strategy.
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The discussion of the specific security identified in this article is solely intended to illustrate the application of our investment approach. Our views expressed herein are subject to change and should not be construed as investment advice and are not designed or intended as a basis or determination for making any investment decision for any security. This information is current as of the date of this material and is subject to change at any time, based on the market and other conditions. Past performance is no guarantee of future results.
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© 2023 Jensen Investment Management.
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