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Leerink Swann Downgrades Waters, Noting Macroeconomic Environment and Soft End Markets

NEW YORK (GenomeWeb News) – Leerink Swann downgraded Waters today to Market Perform, saying the company could be challenged by the macroeconomic environment and softer end-markets, as well as increasing competition for its products and services.

Analyst Dan Leonard downgraded the company from a prior rating of Outperform, though he kept the valuation on Waters' stock in the $88 to $89 range.

In a research note, he cited a number of factors that could work against the company in 2013, beginning with a macroeconomy that Leonard said may not improve meaningfully during the year. Additionally, he doesn't expect biopharma to ramp up its R&D spending or capital expenditure.

"While [Waters] has some track record of enjoying a top-line rebound following a disappointing year … we believe any rebound in 2013 from a disappointing 2012 will be modest at best," Leonard said.

Through the first nine months of 2012, Waters' recurring revenues rose about 7 percent year over year, driven by strength in services. The growth trajectory, however, "can fluctuate quite a bit year to year," he said, and competitors such as Thermo Fisher Scientific and PerkinElmer are eating into this business.

In March Waters launched its Acquity UPC(2) chromatography system, and while it could provide some revenue growth for the firm this year, Leonard said that it may not provide the boost that the firm's launch of the Acquity H-Class UPLC in 2010 gave.

Meanwhile, penetration of the H-Class "may be early to middle innings at most," but it faces tough comparisons from prior years, "and thus we don't envision it will be able to provide the organic growth boost it once did," he said.

He added that the company continues to be an innovative developer of mass spectrometers, but prior diligence suggests that spending on such systems is slow and Waters may be losing share to Thermo Fisher. Leonard also said that other mass spec competitors are increasingly offering liquid chromatography instruments with their mass specs as an integrated system, further eating into Waters' business and noted, for example, that Bruker recently introduced its tandem quadrupole system with its own LC.

Shares of Waters were down 3 percent on the New York Stock Exchange in afternoon trading at $86.15.

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