Things are Runnin' Smooth at Waters Corporation
By Matt Paolucci

What comes to mind when you hear a name like Waters Corp? Perhaps a bottled water company or maybe a water treatment plant. Well, what if I said that they are industry leaders in high-performance liquid chromatography, thermal analysis and mass spectrometry sound? You're probably thinking to yourself, "Am I going to need to take a class before I finish reading this story?" When it comes to these high-tech processes, Waters Corporation (WAT) is the big fish in the pond.

There really isn't a way to say what Waters does, but I guess you could say that Waters can tell you exactly what you're drinking. The company makes high-performance liquid chromatography instruments that researchers, scientists and engineers use to separate and identify chemicals and materials. Its products help develop new drugs, identify the nutritional content of foods, and test air and water quality.

One of its subsidiaries, TA Instruments, makes thermal (heat) analyzers and rheology (temperature-regulation) instruments for determining the physical characteristics of polymers, or man-made compounds. Thermal analysis techniques are used in the development, production and characterization of materials in industries such as plastics, chemicals, pharmaceuticals and electronics.

Another subsidiary, Micromass, makes mass spectrometers that are used in conjunction with other analytical instruments to identify compounds. Waters primarily targets the pharmaceutical industry, but it also sells to universities and government agencies.

So, what the heck is high-performance liquid chromatography? Basically, HPLC is the technology used in laboratories doing pharmaceutical, life science, industrial chemical, and food and beverage research. In many instances, Food and Drug Administration (FDA) and Environmental Protection Agency (EPA) regulations, and their international counterparts, mandate testing that requires HPLC instrumentation. HPLC is necessary for efficiently separating constituents in a complex mixture in order for those constituents to be accurately quantified and further characterized by nuclear magnetic resonance (NMR) and mass spectrometry.

NMR helps in providing very specific and accurate structural information from protein and other bio-molecular drug targets to small molecule lead compounds generated by medicinal or combinatorial chemistry. NMR is a key enabling technology used in the pharmaceutical and biotech industries in drug discovery, development, metabolism studies and animal model research.

When NMR is coupled with liquid chromatography, the resulting combined technique (HPLC/NMR) can provide highly specific information-rich structural information on complex mixtures, which complements the traditional HPLC/MS (mass spectrometry) information.

Mass spectrometry, just in case you were wondering, is concerned with the separation of matter according to atomic and molecular mass. It is most often used in the analysis of organic compounds of certain molecular masses, typically restricted to volatile compounds. Mass spectrometry is the most versatile, sensitive and idly-used analytical method available today.

Besides being involved with some amazing technologies, Waters is a moneymaking machine with solid net profit margins. For the fourth quarter, ending December 31 of last year, the company reported revenues of $200.6 million, and net income of $41 million, a 21 percent net profit margin. For the year, revenues were $704 million, net income was $121.8 million, a very respectable 17 percent net margin.

Out of the eight analysts surveyed by Zack's Investment Research, five have Strong Buy ratings and three have Moderate Buy ratings. Waters is ranked 4th out 18 companies bundled under the category of Scientific Instruments.

In today's financial markets, where high-tech rules the daily headlines, Waters seems to have placed itself at the crossroads of several fast-growing high-tech areas: biotech, pharmaceuticals, electronics, life sciences and drug discovery. On top of that, the company is highly profitable, traded on the prestigious NYSE, and has the support of numerous Wall Street firms. Shares are currently trading for around $94, roughly 42 times fiscal 2000 earnings estimates of $2.21 per share.