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William Blair Begins Coverage of Waters with Market Perform Rating

NEW YORK (GenomeWeb News) – William Blair on Thursday initiated coverage of Waters, saying it believes the company can continue on its path of revenue growth and noting Waters consumables business and emerging market presence.

The investment bank initiated coverage with a Market Perform rating and a Core Growth company profile.

Analyst Amanda Murphy said in a research note that Waters grown organic revenues in the high-single digits, driven by new product innovation. "We believe Waters hould be able to continue to grow revenues at a mid- to high-single digit rate over the next two to three years," Murphy said.

The potential growth, she said, would come from growth in the pharmaceutical/biotech sector, which comprises more than half of Waters' business. Further growth drivers include a continued conversion of customers to UPLC technology from HPLC technology as well as new product introductions and enhancements to existing products.

On the mass spectrometry front, Waters lost market share in the high-resolution segment to Thermo Fisher starting in 2011 Murphy said, but has since regained its footing, particularly in its Synapt and Xevo platforms. As result, she said that she expects a "normalization" of Waters' mass spec business and a contribution of 4 percent to 5 percent in instrument growth this year and in 2014. In 2012, the mass spec business was down 6 percent.

Also, sales of higher margin, recurring consumables and services, which make up about 47 percent of Waters' total revenue should shield the company from cyclical demands and capital budget gyrations, Murphy said. Between 2009 and 2012, a challenging macroeconomy resulted in contracted instrument sales at the company. Recurring revenue was "pressured, but was still positive," she said.

Additionally, about 30 percent of Waters' revenues results from the emerging markets, which Murphy said is one of the highest exposure rates among comparable tools firms. The emerging markets has been targeted as a crucial revenue-growth opportunity by omics tools firms for several years, and moving forward, Murphy said that the market could make up half of Waters' revenue growth during the next three years, "with China alone contributing a third of growth."

She also pointed to share buyback activity by the company, saying repurchases have added 3 percent to annual earnings growth during the past five years.

"We expect the company to continue to buy back stock; we forecast an additional 4 percent in earnings growth in 2014 and 2015," she said.

In afternoon trading on the New York Stock Exchange, shares of Waters were up a fraction of 1 percent at $104.70.

Waters is scheduled to release its second-quarter earnings results before the market opens on July 23.

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