Executive Summary / Key Takeaways

• Robust Core Business & Innovation: Waters Corporation demonstrates strong commercial momentum, driven by a revitalized portfolio of high-performance liquid chromatography (LC) and mass spectrometry (MS) instruments, particularly the Alliance iS and Xevo TQ Absolute systems. These innovations, coupled with a focus on high-volume, regulated applications, are fueling a significant instrument replacement cycle and commanding premium pricing.
• Strategic Expansion into High-Growth Adjacencies: The company is strategically expanding into fast-growing areas like GLP-1 and PFAS testing, and the India generics market, which are providing substantial growth accretion. The pending $17.5 billion combination with BD 's Biosciences & Diagnostic Solutions business is a transformative move, expected to double Waters' total addressable market and unlock significant synergies.
• Strong Financial Performance & Outlook: Waters delivered impressive Q3 2025 results, with 8% constant currency sales growth and 16% adjusted EPS growth, exceeding guidance. The company raised its full-year 2025 constant currency sales growth guidance to a 7% midpoint and adjusted EPS to $13.05-$13.15, reflecting confidence in sustained momentum and operational excellence despite macroeconomic headwinds.
• Technological Leadership in Bioanalytical Characterization: Waters is making significant strides in bioanalytical characterization with new product launches like the Xevo Charge Detection Mass Spectrometer (CDMS) and the evolution of its Empower software. These advancements are critical for analyzing complex biomolecules and enhancing compliance in pharmaceutical applications, positioning Waters favorably for emerging trends like biosimilar development.
• Operational Agility & Risk Mitigation: The company has a proven track record of operational agility, effectively mitigating impacts from tariffs and other market dynamics through supply chain adjustments, selective surcharges, and disciplined cost management. However, the BD merger introduces integration and indebtedness risks that warrant close monitoring.

Setting the Scene: Precision Science Meets Strategic Vision

Waters Corporation, founded in 1958, has established itself as a global leader in analytical instruments and software, pioneering innovations in chromatography, mass spectrometry (MS), and thermal analysis for over 65 years. The Milford, Massachusetts-based company primarily serves the life, materials, and food sciences, with a core business focused on designing, manufacturing, selling, and servicing high-performance liquid chromatography (HPLC), ultra-performance liquid chromatography (UPLC), and MS technology systems. These offerings are complemented by chromatography columns, consumables, and comprehensive post-warranty service plans. Waters also extends its reach through the TA Instruments product line, specializing in thermal analysis, rheometry, and calorimetry instruments, and develops advanced software platforms that integrate seamlessly with its hardware.

Over the past five years, Waters has demonstrated remarkable resilience and strategic foresight, successfully navigating global challenges such as the pandemic, chip shortages, supply chain disruptions, and inflationary pressures. This period has been defined by a steadfast commitment to three guiding principles: relentless commercial execution, revitalized innovation, and strategic expansion into high-growth adjacencies. This approach has solidified Waters' position in downstream, high-volume, regulated testing markets, which are less susceptible to early-stage research volatility and more tied to consistent manufacturing output and quality control.

Technological Edge: The Engine of Waters' Moat

Waters' competitive advantage is deeply rooted in its differentiated technology, which offers tangible and often quantifiable benefits over alternatives. The company's core strength lies in its integrated analytical workflow solutions, combining advanced instrumentation with sophisticated software.

The MaxPeak Premier Columns, launched around 2020, exemplify this technological leadership. These columns set a new standard in reverse phase separations across both small and large molecule pharmaceutical applications. They are recognized as the benchmark for achieving clearer peaks, maximum reproducibility, and the highest confidence in results, directly accelerating analytical decisions across discovery, development, and manufacturing. This proprietary surface technology enhances data quality and reduces method development time, translating into operational efficiencies and cost savings for customers.

In liquid chromatography, the Alliance iS HPLC system has been a standout performer. This flagship product has seen its sales more than triple year-over-year in Q1 2025, constituting 20% of the company's HPLC revenue in Q4 2024. The Alliance iS is lauded for its "smarter, more capable liquid chromatography separation that minimizes user errors," offering flexibility and productivity advantages that drive adoption in both replacement and greenfield opportunities, particularly in new and expanding pharmaceutical manufacturing facilities.

The Xevo TQ Absolute mass spectrometer is another cornerstone of Waters' technological moat. It consistently ranks as the company's best-selling mass spectrometer, with unit sales growing 40% year-over-year in Q4 2024 and contributing 50% of tandem quad revenue. Its "superior sensitivity and sustainable design" make it ideal for high-volume quantitative measurements in compliant settings. The recently launched Xevo TQ Absolute XR further extends this advantage, demonstrating "exceptional robustness and sensitivity" by enabling 30,000 uninterrupted plasma injections, a tenfold improvement over previous capabilities. This performance allowed Waters to displace a competitor in a pharmaceutical DMPK (Drug Metabolism and Pharmacokinetics) laboratory, highlighting its direct competitive superiority.

A significant breakthrough in bioanalytical characterization is the Xevo Charge Detection Mass Spectrometer (CDMS), launched in October 2025. This system represents a "transformative breakthrough" by enabling direct, high-resolution measurement of the largest and most complex therapeutics in high-volume applications. It offers "faster results, easier operation," and requires "1% of sample volume" compared to traditional methods, providing insights up to "10x faster." The Xevo CDMS is relevant for 40% of the large molecule pharmaceutical pipeline and addresses a total addressable market of approximately $350 million, growing at high single-digits to low double-digits. This innovation directly enhances Waters' competitive moat in the rapidly expanding biologics market.

Waters' software prowess is epitomized by Empower, which "has long set the standard for compliant informatics in pharmaceutical applications" and is "used in more than 80% of novel drug approvals by the FDA, EMA and China's NMPA." The company is actively evolving Empower into a more comprehensive platform for bioanalytical characterization, integrating new detectors like multi-angle light scattering (from the Wyatt acquisition) and planning for flow cytometry. A significant release cadence in 2026 will introduce cloud-native features leveraging AI and machine learning to "reduce manual interventions, save analyst time, minimize compliance risks," and "enhance instrument utilization and uptime through predictive maintenance." This strategic shift towards a subscription-based model for Empower is expected to unlock long-term growth accretion and deepen customer engagement within Waters' digital ecosystem.

The "so what" for investors is clear: these technological differentiators translate directly into higher average selling prices (ASPs), better gross margins, and a stronger competitive position. By consistently delivering instruments and software that offer superior performance, efficiency, and compliance, Waters reinforces its market leadership in critical, regulated segments, ensuring sustained demand and customer loyalty.

Competitive Landscape and Strategic Positioning

Waters operates in a highly competitive analytical instruments market, facing formidable direct rivals such as Thermo Fisher Scientific (TMO), Agilent Technologies (A), and Danaher Corporation (DHR). Each competitor brings distinct strengths, shaping Waters' strategic positioning.

Waters' core competitive advantage lies in its specialized technological expertise and customer-focused approach. Its MS systems, for instance, offer significantly higher efficiency in protein analysis compared to broader offerings from Thermo Fisher Scientific, leading to enhanced customer loyalty and superior margins in targeted segments. While Thermo Fisher boasts a wider product portfolio and extensive R&D, Waters counters with notably better performance in niche tasks, exploiting TMO's potential weaknesses in specialized support. Against Agilent Technologies, which often emphasizes accessible pricing and streamlined manufacturing, Waters differentiates through its proprietary technology for precise analysis, offering superior accuracy and speed in applications like environmental testing. This allows Waters to command premium pricing, although Agilent's materially lower operating costs due to efficient manufacturing can pose a challenge in price-sensitive markets. Danaher Corporation, with its diversified conglomerate structure and aggressive acquisition strategy, leverages its scale for broader market penetration. Waters, in contrast, prioritizes innovation in software-driven workflows and offers advanced capabilities in thermal analysis, often with notably better performance in predicting material stability for industrial applications.

Waters holds a strong relative position in specialized analytical instruments, particularly for high-precision applications in life sciences and pharmaceuticals. The company is a leader in analytical instruments and software, holding 100% share in columns usage for GLP-1 testing and being the number one player in online GLP-1 testing. Its Xevo TQ Absolute remains the instrument of choice for PFAS testing, recognized as the most sensitive instrument in the market with the lowest environmental footprint. This specialized leadership allows Waters to maintain a robust market share in its niches, even as larger competitors like TMO and DHR pursue more aggressive expansion strategies.

However, Waters faces vulnerabilities, including potential supply chain dependencies and a narrower product portfolio compared to its larger, more diversified rivals. These factors could impact cost efficiency and revenue stability, particularly if market disruptions occur. Waters strategically addresses these by focusing on high-value segments, leveraging its strong brand reputation, and emphasizing recurring revenue from consumables and service plans. The company's high R&D requirements and the need for regulatory approvals in its industries act as significant barriers to entry, further defending its market position.

The pending combination with BD 's Biosciences & Diagnostic Solutions business is a transformative strategic response to the competitive landscape. This merger is expected to double Waters' total addressable market to approximately $40 billion, providing enhanced scale and complementary capabilities. While BD's microbiology business has historically trailed competitors in growth, Waters plans to apply its proven commercial execution playbook—including improving service plan attachment and e-commerce adoption—to close this gap. The microbiology segment also presents a 700 basis point gross margin expansion opportunity and untapped growth vectors like mass spectrometry for microbial identification ($500 million TAM) and pharma sterility testing in QA/QC ($300 million TAM), areas where Waters' technology and market access can create significant value.

Financial Performance: A Story of Resilience and Growth

Waters Corporation's financial performance in 2025 reflects a compelling narrative of resilience, strategic execution, and a return to robust growth. For the three months ended September 27, 2025, total net sales increased by 8% (both reported and constant currency) to $799.9 million, compared to the same period in 2024. This strong performance was broad-based, driven by heightened customer demand for Waters Division products and services across most major geographies and end markets. Product sales grew 8%, while service sales also increased by 8%.

The Waters operating segment, the company's largest, saw its net sales rise 9% to $713.38 million in Q3 2025. This was primarily fueled by Waters instrument systems, which grew 6% to $281.91 million, led by strong demand for LC-MS systems. Chemistry consumables were a standout, with sales surging 14% to $158.48 million, driven by the uptake of columns and application-specific testing kits for pharmaceutical customers, particularly in bioseparations, which grew over 20%. Waters service sales also contributed significantly, increasing 9% to $272.99 million due to higher service demand.

The TA operating segment, while smaller, showed signs of recovery, with sales increasing 2% to $86.51 million in Q3 2025, returning to positive growth sooner than expected. This improvement was attributed to improving macro sentiment and stabilizing tariff-related volatility with industrial customers.

Profitability metrics, however, showed some near-term pressures. Operating income decreased 9% to $192.11 million in Q3 2025. This decline was primarily due to a shift in sales mix, merit increases, and approximately $31 million in transaction and integration costs related to the pending BD Biosciences and Diagnostic Solutions Merger. Additionally, $6 million in expenses were incurred for the new ERP system implementation. Despite these factors, the adjusted earnings per share (EPS) grew a robust 16% to $3.40, exceeding the midpoint of guidance. The effective tax rate for the quarter was 12.50%, down from 16.60% in the prior year, benefiting from discrete tax benefits.

For the first nine months of 2025, total net sales increased 7% to $2.23 billion. Operating income remained largely flat at $532.07 million, as higher sales volumes and the absence of prior-year litigation settlements were offset by merit increases and $45 million in merger-related transaction costs, plus $14 million for the ERP system. Net income for the nine months grew 3% to $417.42 million, resulting in diluted EPS of $7.00.

Waters' liquidity and capital resources remain strong. Net cash provided by operating activities was $488 million for the first nine months of 2025, a decrease from $522 million in the prior year, primarily due to higher tax payments and merger/ERP-related costs. The company held $459 million in cash, cash equivalents, and investments as of September 27, 2025, with a significant portion held by foreign subsidiaries. Total outstanding debt stood at $1.40 billion, with net debt borrowings decreasing by $220 million during the first nine months of 2025. The company's share repurchase program has $1 billion remaining authorization, extended through January 2028, though no open market repurchases occurred in 2025 or 2024.

Outlook and Growth Catalysts

Waters' management is highly confident in its forward trajectory, driven by a confluence of strong market tailwinds, continued innovation, and strategic initiatives. The company raised its full-year 2025 constant currency sales growth guidance to a range of 6.7% to 7.3%, with a 7% midpoint, an increase from its prior outlook. Full-year adjusted EPS guidance was also raised to $13.05 to $13.15, representing 10% to 11% growth. This updated guidance reflects sustained commercial momentum and the positive impact of innovation across the portfolio.

Several key growth catalysts underpin this optimistic outlook:

• Instrument Replacement Cycle: Waters is in the "mid innings" of a multi-year instrument replacement cycle. Instrument growth is currently tracking at a low single-digit CAGR versus 2019, steadily reverting towards the long-term historical rate of 5%. This cycle is expected to be prolonged, as lagging market segments eventually replace aging fleets.
• Idiosyncratic Growth Drivers:
  • GLP-1 Testing: Revenue more than doubled in Q3 2025, driven by demand in development and manufacturing, including generic semaglutide production in India. Waters holds a leading position in this rapidly expanding market.
  • PFAS Testing: Orders grew approximately 30% in Q3 2025, with strong demand across regions, particularly in Japan due to new drinking water regulations and in U.S. federal, state, and municipal labs. The Xevo TQ Absolute remains the instrument of choice for this growing $400 million market.
  • India Generics: Revenue was up high teens in Q3 2025, benefiting from strong demand from generics manufacturers and CDMOs tied to ongoing patent cliffs.
• Innovation Pipeline: Waters plans a "robust cadence of breakthrough product launches" in 2026. The Xevo CDMS is a game-changer for large molecule mass spectrometry, and the Empower software is set for a significant evolution in 2026, introducing cloud-native, AI/ML-powered features to enhance productivity and compliance.
• BD Biosciences & Diagnostic Solutions Merger: The pending $17.5 billion combination with BD 's Biosciences & Diagnostic Solutions business is a "powerful catalyst for near-term synergy realization and long-term value creation." This transaction, expected to close around Q1 2026, will significantly expand Waters' market reach and create a leading global life sciences and diagnostics company. Management anticipates $345 million in adjusted EBITDA synergies by year five, including $200 million in cost synergies by year three and $290 million in revenue synergies by year five. These synergies will be driven by applying Waters' commercial excellence playbook to the acquired business, improving service plan attachment, and leveraging e-commerce.
• Biosimilar Development: New U.S. FDA draft guidance in October 2025, favoring advanced analytical characterization over routine clinical efficacy studies for biosimilar approvals, presents a "meaningful shift" that could "increase demand for analytical instruments and compliance-ready workflows" like Waters' BioAccord LC-MS System and multi-angle light scattering.

Risks and Challenges

Despite the compelling growth narrative, several risks warrant investor attention. The most significant near-term risk is the BD Biosciences & Diagnostic Solutions Merger. Its consummation is subject to regulatory approvals, shareholder approval, and an IRS private letter ruling, with potential for delays, increased transaction costs, and business disruptions. A termination of the merger agreement under certain circumstances would require Waters to pay a $733 million fee to BD. The substantial indebtedness associated with the merger, including the assumption of $4 billion in new debt and a potential $1.8 billion Waters Special Dividend, could reduce Waters' financial flexibility, lower credit ratings, and increase borrowing costs. Successful integration of BD's business is crucial, and difficulties could adversely affect the combined company's future results.

Tariffs and trade policy fluctuations also pose a risk. The U.S. government's varying tariffs and retaliatory measures from other countries could significantly impact Waters' financial performance and supply chain. While Waters has demonstrated operational agility in mitigating these impacts, the environment remains dynamic. Furthermore, the U.S. government shutdown that began in October 2025 could delay regulatory approvals for the BD merger.

Foreign currency exchange rate fluctuations continue to impact Waters' net sales, cost of sales, operating expenses, and balance sheet, given its global operations. A hypothetical 10% strengthening of the U.S. dollar, for instance, could decrease the fair market value of foreign currency cash and equivalents by approximately $29 million. Finally, the ongoing ERP system implementation, a $130 million investment over three years, carries inherent risks of operational disruption.

Conclusion

Waters Corporation stands at a pivotal juncture, poised for an exciting new era of growth driven by its unwavering commitment to precision science and strategic expansion. The company's robust core business, fueled by a revitalized portfolio of innovative LC and MS instruments, is capitalizing on a significant instrument replacement cycle and commanding strong pricing power. This technological leadership, exemplified by products like the Xevo CDMS and the evolving Empower software, underpins Waters' competitive moat in high-volume, regulated testing markets.

The pending combination with BD (BDX)'s Biosciences & Diagnostic Solutions business represents a transformative leap, set to double Waters' addressable market and unlock substantial synergies. This strategic move, coupled with the continued momentum from idiosyncratic growth drivers like GLP-1 and PFAS testing, and the expanding India generics market, positions Waters for sustained top-line growth and double-digit adjusted EPS expansion. While the BD merger introduces integration and indebtedness risks, Waters' proven operational agility and disciplined execution provide confidence in its ability to navigate these complexities. For discerning investors, Waters Corporation presents a compelling investment thesis, offering exposure to a resilient business with a clear roadmap for leveraging technological leadership and strategic M&A to drive long-term value creation in the dynamic life sciences and diagnostics industry.